Does the strategy work on the short side as well? Or is it a long only play? Does it work even when overall market opens lower?
Still researching the short side, and hopefully I'll come up with one soon. There have been days when the broader markets open lower and I still eke out a profit. Since there's so much volatility at the open I can get lucky at my ask without having to adjust downward too quickly. My goal is really to get as close to the open as possible (trying to achieve <0.4% slippage from the "official" open), since that's what I've backtested on. This is one of the pluses of trading this way. It means that I don't have to rely on my discretion and try to extract the most profit possible during the trade since my profit maximization is built into the stock selection process and assumes entry at close and exit at open. I've noticed that when I attempt to use my discretion, most of the time I end up worse off than if I'd just sold at the open.
For ten months now. Obviously during the last half of '03 it would have been impossible not to do well, but since January things have been sideways at best, and myreturns have been equally consistent. Just this past week the Nasdaq dropped 4.4% so far and I managed a 2.44% return on my account.
Hi, How did you adjust/control for the possibility of stale prices? Background, for newbies ----------------------------------------------------------- In backtesting buy at close strategies: If you are using a trending strategy, results may look better than would be real because the stock didn't trade late in the day. The probability of the stock bid/ask (both or just ask) rising late in the day could increase if the stock goes up during the earlier part of the day. If you are using inter-market anlayses, the probability of the stock bid/ask having gone up late in the day is increased when the market is up. Thus your backtested results could use stale prices that do not accurately reflect possible trades. ----------------------------------------------------------- 35% is great. Congrats.
I investigated a similiar strategy a while back. I ran a real time scan of stocks closing at the high at the end of the day and then watched them the next morning. For a limited sample most of them went up the next day but not very much in most cases. I didn't see anything that would make me think that I could make any money with it, considering the downside risk, so I didn't pursue it any further. But I still think that it is an interesting idea.
I have traded overnights with similar results (good when the market was going up, flat lately). The issue with exits in the morning is one can use ASK orders to get out of the position in a rising market but but need MARKET orders during a falling market. As the intent is to exit in the first 30 seconds of the OPEN, it is dificult to enter ASK prices with any confidance that the orders will get executed. If I have many positions (>10) I have been exiting with an OPEN MARKET order on IB with OK results but have to keep the orders small or the Market Makers have a field day. If I could get away with ASK prices the profitabilty of the strategy would do better. Do you pre-calculate you morning ASK price based on EOD data or wait nearly to 9:30am at the open and use the current ASK price of the stock? or add a few pennies to the 9:30 ASK and pray for execution? Regards, GUS
There are hedge funds set up that trade exactly this way. I recommend you look at Chap 04 of "Beyond the Random Walk" by Vijay Singal. nitro