There are many variables to the success of this strategy. These include: 1) the stocks (high or low volume, SPU correlation, beta/volatility, historical specialist behavior, etc.) 2) treatment of "news" (definition of news, include/exclude, wider envelopes in the event of news, etc.) 3) "envelope" quantity (is this a function of the prior day's cash close versus AM futures or a standard quantity such as 1%?) 4) envelope bias (if futures are up, then skew the envelopes to get less shorts or should the trader always use symmetrical envelopes?) 5) exit strategy (time based, trailing stops, use of automation, etc.) With all of the above said (I have thought about this strategy quite a lot), the specific question I am initially interested in is about how you guys decide about what stocks to include or exclude. For what it is worth, I think my approach is unique: * I statistically analyze specialist opening price correlations with the opening of the SPU's. * Since the strength of the strategy is that it profits when stock prices revert to the "correct" price (in consideration of prior close, beta, SPU fair value, etc.), what I focus on are stocks that have both a high and stable correlation to the SPUs on a close to open basis. If this correlation is high and stable, then the reversion tendency is likely to be highest.... this is what my research tells me. For those who know me, I am a "quant" but I submit to those who have more extensive experience than I with this strategy. Thanks for your input on any of the above topics. Sharif
i took T out my rotation until further notice, that big volume sell off was enough to scare me a way for awhile, fearing more big sell offs. ive been having trouble getting fills lately, for about the last few weeks ive had like two days a week where i get no fills and this is even after using smaller envelopes. Don, or anyone else having this trouble too?
I am interested in trying the oo strategy. I feel that i am almost ready to give it a go. The only problem i am having is coming up with a list of stocks to try it on? How does one come up with a list? Do you just take a wild guess and then modify it as time goes on? I feel there must be some sort of way to come up with a list. I have a very generic list of about 100 stocks. I want to condense the list. Also i understand if there is news out on a stock or industry you want to adjust your oo price. If someone is doing oo with a list of 50 or so stocks, how does the person know if there is news out? How can you check for news without spending tons of time? Any comments would be much appreciated from Don or anyone else who wishes to comment. Sorry if i am going into a subject that has been already answered in earlier posts.
"ive been having trouble getting fills lately, for about the last few weeks ive had like two days a week where i get no fills and this is even after using smaller envelopes. Don, or anyone else having this trouble too?' YES
My fill rate for this month is at 9%, vs. historical average of 10%. I've been using a .9% envelope a lot this month as opposed to the 1% I almost always use. The opening gaps this month have definitely been smaller than usual, with only one day with a gap more than 1%. If you want more fills, you can obviously tighten the envelope, but I prefer to just use a larger stock list. When deciding what stocks to use, just pick several large caps from the S&P 500 spread across most sectors. It's going to be trial and error as to which ones are best. That's why you need to keep notes and stats on the stocks on your list and get rid of the bad ones and replace them with new ones. You eventually want a list of stocks that usually close their gaps and will give you good fills on the exit without too much slippage. Success is going to come from being familiar with how the stocks on your list trade, and just plain good trading skills. There are many ways to trade this strategy. Some people like lots of fills with automated exits, others want only a handfull that they can watch closely and finesse. But like anything, it takes time and hard work to get really good at this strategy.
What do you guys use to enter orders? I know the Bright guys have an automated system. I personally enter each trade manually. This is a pain in the ass. I find it hard to enter more than 70 orders(35 stocks) pre market. I start entering at about 9:15. I am pretty fast typer but I need a more efficient way since I would like to enter more orders pre market. It would be great if I could enter orders straight from my spreadsheet.
Best way to accomplish auto orders is find a broker whose system is accesible via an API. you then would need some Excel VBA or Visual basic skills to "talk" to the system. I know that REDI, IB's TWS and Sterling technologies (used by echotrade, some Penson shops), even Instaquote are possible candidates. Good luck
"What do you guys use to enter orders?" I use a spreadsheet, then use IB to import the orders into a basket
Does the don's openings still work if you are doing 5k+ size open orders. i havn't tried the strategy very much.... One day i got a good fill on a 5k order on AIG (very large cap), but for the most part it seemed that i rarely got fills on mid caps doing 5k size. So i basically lost interest because it became a distraction.