Opening Orders - 2009

Quote from jodistrict:

For the last few openings, I have been doing manual exists only and doing better. I limit my order to 10 and try to set my envelopes to get no more than 3 fills. The problem I have with automatic exits is the following – your winners get filled at a limited profit but your losses are unlimited. So, I got nailed a few times by having a few small winners and then one big loss that took back all the winnings and more. It seems over the long run, if you limit your upside, but have an unlimited downside, you are going to end up with a negative expectation. You also need some big wins to offset the big losses, so when I exit manually I can let the winners ride. I am interested in hearing how other traders manage this. Those who totally automate, are you using also automated stops – and how do you avoid the danger of a naked short sale?
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I am not "totally" automated. I only send take profit limits at a very good price where I dont limit that much my potential profit. I use max(fill+fill*0.01, FV) for longs and min(fill-fill*0.01, FV) for shorts. I like it becaues it places the orders with the right quantity and side so I gain some time. I can then change it higher or lower to ride the thing or cut profits, take loss. So I dont really limit my profits, I am greedy on the initial price I want, if I get it I'm happy with it. I determined it based on my average winners.
I understand what you mean by limited profits and unlimited loss. This is just the way it is. We have to judge what is going to go wrong and we have the high % of winners on our side (80% for me) to account for the losers. So I dont really consider I have negative expectation. I dont use stop because I found I just get shaken out and loose too often on positions that I would have gain without stops. Even trailing stops did not work for me.
 
I've been trading opening orders for about a month now with decent results, but I want to start scaling up and try to take things to the next level. Until now I've just used pre-market prices and imbalances as a filter to exclude some stocks, but haven't used them to tweak the buy and sell prices.

Of course, there are many ways to tweak your prices- to increase or decrease the chance of a fill. I wonder if anyone has experience in doing this. I tend to be risk averse, so I lean toward tweaking my prices to decrease the chance of a fill if I am too far away from the pre-market trading range. (e.g. for a buy decrease my price if I'm above the pre-market asked, and for a sell increase the price if I'm below the pre-market bid. Another wrinkle could use imbalance numbers, but I've found for the liquid stocks they are pretty small in the morning.

I wonder if anyone has adjusted for pre-market prices or used imbalances consistently and whether it is really worthwhile. (Sometimes adding too much complexity can backfire).
 
1.2 envelope. 2 buys, 1 short, 7 cents. Need more discipline on trailing up. MS was a nice fade long, but didn't hang with it and it was my only open position. The spoos down hard made me overly nervous.
 
I was wondering if anyone who has a good knowledge of the workings of the market could comment on this. Sorry if this is a bit long.

I'm a numbers guy, so I like to create simulations and analyze the data. I have a monster database, not only does it include prices, but it even includes news for the stock, what the mkt is doing, fair values, vix, similar sectors, and officaly NYSE opening prices. It's got it all.

So what I did was I created a simulation and found that this strategy on paper does quite well. I have been trading the strategy for quite a bit, and I can say that my results are definitely not as good as the simulation produced.

One of the downfalls of creating a simulation is when you use conditional orders, sometimes you will be filled and this is really not possible to recreate in a simulation. So I'm trying to find out why my real time results are not close to the simulation.

I have been trading a lot of stocks, some liquid, some not as liquid like 500k to 1 million average daily volume. For example

XYZ closes at 100, and when I send my order in, the expected value that is market is opening is exactly 0. Say I do a 2% envelope so I send an Sell OPG order at 102. Here is what the list of orders looks like.

102 1000 shares (my thousand shares)
101.50 2000
101. 47 2000
101.40 1000


So the specialist, who I assume knows where the stock is heading doesn't anticipate any institutional activity after the mkt opens and believes this stock is going to sell off. There is a big buy imbalance so he fills up to 101.50, and notices he needs to fill 10,000 more shares, so he parks an order @ 101.99 for 10,000 shares.

We open at 101.99, and I don't get filled, and the stock comes crashing down.

Now on my simulation, which matches it fairly decently but not perfectly notes the expected opening to be down 0.001% So it places a simulation order at 101.99 and counts you as being filled.

My question is this is a legitament concern? Is this trouble enough that in order to avoid / minimize this we are better doing it on very liquid stocks, where this pinching off will be less likely to occur.
 
Sky,
Are you talking about some sort of observer effect, where your presence in the market results into outcomes different from what a backtest would have been had your orders not been present?

If so, I'd say that is a function of your size relative to the market of the stock, the bigger a player you are the more you will affect the outcome. Shouldn't be a big factor in more liquid OPG's, as you allude to.

As you probably know from your backtests, as you go down in market cap and ADV your paper alphas go up, but you need to give it a bigger haircut for implementation transaction cost. PM me if you want to chat more about this.

Quote from Sky123987:

I was wondering if anyone who has a good knowledge of the workings of the market could comment on this. Sorry if this is a bit long.

I'm a numbers guy, so I like to create simulations and analyze the data. I have a monster database, not only does it include prices, but it even includes news for the stock, what the mkt is doing, fair values, vix, similar sectors, and officaly NYSE opening prices. It's got it all.

So what I did was I created a simulation and found that this strategy on paper does quite well. I have been trading the strategy for quite a bit, and I can say that my results are definitely not as good as the simulation produced.

One of the downfalls of creating a simulation is when you use conditional orders, sometimes you will be filled and this is really not possible to recreate in a simulation. So I'm trying to find out why my real time results are not close to the simulation.

I have been trading a lot of stocks, some liquid, some not as liquid like 500k to 1 million average daily volume. For example

XYZ closes at 100, and when I send my order in, the expected value that is market is opening is exactly 0. Say I do a 2% envelope so I send an Sell OPG order at 102. Here is what the list of orders looks like.

102 1000 shares (my thousand shares)
101.50 2000
101. 47 2000
101.40 1000


So the specialist, who I assume knows where the stock is heading doesn't anticipate any institutional activity after the mkt opens and believes this stock is going to sell off. There is a big buy imbalance so he fills up to 101.50, and notices he needs to fill 10,000 more shares, so he parks an order @ 101.99 for 10,000 shares.

We open at 101.99, and I don't get filled, and the stock comes crashing down.

Now on my simulation, which matches it fairly decently but not perfectly notes the expected opening to be down 0.001% So it places a simulation order at 101.99 and counts you as being filled.

My question is this is a legitament concern? Is this trouble enough that in order to avoid / minimize this we are better doing it on very liquid stocks, where this pinching off will be less likely to occur.
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Well Mr. Sky...what you bring up is three completely separate factors. One is, as mentioned above, the size of the order. We tend to limit to only 2,000 shares per order for most stocks, no more than 5,000 for the GE's of the world. So, proper sizing is very important.

Secondly, you're assuming the Specialist "knows" where the stock is going...not always the case, trust me. As with the 'market on close" imbalances, brokers and traders have orders that can and will be place immediately upon see the opening price. These orders are unknown to the Specialist (and his algo's).

The third might get me in trouble, but simulations simply don't and cannot take into consideration all the variables involved. To prove this, you could put in 100 share orders, with tigher envelopes to assure fills and retracements (just a suggestion).

And, possibly the old "Trader's lament" of "They" know it's me, and they're out to get me, LOL.

The opening strategy IS a Numbers Game and the successful numbers come from decades of trading it.

All the best,

Don

(A good question, I may submit to TASC if that's ok with you... you'll be anonymous of course).
 
Quote from Don Bright:

Well Mr. Sky...what you bring up is three completely separate factors. One is, as mentioned above, the size of the order. We tend to limit to only 2,000 shares per order for most stocks, no more than 5,000 for the GE's of the world. So, proper sizing is very important.

Secondly, you're assuming the Specialist "knows" where the stock is going...not always the case, trust me. As with the 'market on close" imbalances, brokers and traders have orders that can and will be place immediately upon see the opening price. These orders are unknown to the Specialist (and his algo's).

The third might get me in trouble, but simulations simply don't and cannot take into consideration all the variables involved. To prove this, you could put in 100 share orders, with tigher envelopes to assure fills and retracements (just a suggestion).

And, possibly the old "Trader's lament" of "They" know it's me, and they're out to get me, LOL.

The opening strategy IS a Numbers Game and the successful numbers come from decades of trading it.

All the best,

Don

(A good question, I may submit to TASC if that's ok with you... you'll be anonymous of course).
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sure thing
 
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