Enveloping orders

Discussion in 'Order Execution' started by riskreward, Sep 4, 2003.

  1. Hey all. This is a q for all the NYSE traders. I know the lack of volatility has affected everybody but how are the enveloping orders going for you? I'm thinking of paying up for Bright's seminar and maybe some private mentoring for this style. Any comments on how this technique is working right now? Is it still working? Thanks for all your comments.
  2. Dustin


    This strategy only works best in low volatility times (not earnings season). Also you are accepting the risk of disaster if there is a catastrophic event (terrorists etc). Imagine enveloping 50 stocks and getting filled on 50 longs when a bomb goes off in NY. The specialists wouldn't let you cancel. A firm that encourages this strategy is playing with fire imo.
  3. With all respect to my friend, Dustin...we are now in the lowest volatility time frame in years, and if we base our trading on "catastrophic events" - then we should find a new line of work. I usually only envelope 15 or so stocks, and after getting filled on 2 or 3, I cancel the rest (with the new high speed cancel option).

    The enveloping technique has done well to overcome the lack of wider point spreads (due to decimalizaton)....but even with the automation involved, human monitoring is quite necessary.

    Just one of the "arrows" in the quiver, and it (enveloping) can be combined with other strategies as well.

    Good Trading....

  4. Dustin is right on.

    Think about the RR ratio here.

    If you only envelope a few stocks, it's ok, but then
    your not making any real money.

    If you envelope, say 20 stocks, and something drastic occurs,
    you get filled on 1000-2000 shares per stock,
    thats 20,000-40,000 shares all at once!

    Now the market is diving... say everything drops a few points.
    Your out HOW much?

    Kiss you account goodbye.

    The specialist will hold on for 2 minutes covering his ass,
    and then pull the old fast market condition BS on you, and hold
    on even longer.

    You could potentially see 100k+ go up in smoke in minutes.

    If it's REALLY bad.... many of your stocks will be halted, and
    open 10,20,30,40% lower. NOW what do you owe?



  5. OK, let's review this....first off, I agree with starting with a few stocks...I submit a basket of 15-20, and cancel most after being filled on a couple. My feeling is that the chances of something so drastic happening are less than 1 in a 1000, and we can't base our trading decisions based on that.

    Another thing is that I re send all the orders every couple of minutes (some guys use the more "automated" update programs that keep changing your orders as the market moves, but I use the standard Redi Basket Manager, so I have to update....and it keeps me more focused on what I'm doing).

    And since we teach our traders to become "surrogate specialists" in 2 or 3 stocks, we encourage "manual" enveloping of these stocks at all times.

    Overall, we can't seem to rely on momentum as much as in the past (due to the lower volatility), so relying on "trade throughs" and "price improvement" given to us often, seems to be what is helping our people a lot now.

    (Not at all being argumentative, just sharing what I see).

    Good Trading All!!

  6. I trade my firm's capital and my max risk is limited to what I leave/put in. I can accept "losing it all" because I don't put much in and I still get leverage. Dustin's comments are very appropriate however for an individual trader. Everybody's got to have someway of managing downside risk...I guess I've got mine.

    Also, I've talked to one or two scalpers who only envelope 1-4 stocks period. One guy says he only envelopes 1 stock. From what I've seen, you'll only get a few (1-5) fills a day on a stock and that could be it. Don, can you shed some light into this. And no offense Don, but I'd like to hear from other NYSE traders too :)
  7. I gotta agree with Don. There is that 50/50 chance of being on the right side in case of a disaster! After all some traders were short on 9/11. It's that little idea that keeps me from worrying about the next terrorist attack. Of course maybe I would be safer just going long options all the time!
  8. Some comments above, and I hope we don't have anyone but Bright Traders enveloping all day (joking, of course).

    Any businessperson has much more risk and reward than any employee. You should always be "just a little" uncomfortable to be consistent in this game. If you're too comfortable, then you're risking too little, if you're scared to death, you're obviously in over your head (and should do something else).

    The market constantly changes, as do the strategies......we all have to keep up!!

    Element of Ruin should always be a consideration, true, and there will be those who suffer some consequences, simply no way around it!

    This is only one small part of trading, many guys love it, some don't, all we care about is the "bottom line" , right?

    Time to go home.....have a great evening!!


  9. This is patently false.

    I have a lot of experience with enveloping orders
    and I can honestly say that if the market were
    to take a DIVE suddenly, it would be your BUY
    orders (the lower envelopes) that would all be
    taken out at once.

    The spec has NO reason to suddenly print your upper
    envelope order and then take it down 2,4,6 points!

    I would say the chance of getting hit in the WRONG
    direction when a serious event occurs is over 90%.

    If saddam is suddenly caught and the markets start
    ripping straight up, you will be caught SHORT in a whole
    bunch of stocks at once.

    I stopped enveloping long ago when I realized it simply
    wasn't worth the risk. I cannot risk blowing my account
    out in ONE day, even if the risk is 1 in 1000.
    Is that 1 in 1000 per day?? I'll give ya 5 years then, :D



  10. Let me ask you this: Rather than finding a stock which you don't expect to make any huge moves and enveloping it, why not just find a big gainer and put only the buy portion of the envelope in, and find a big losing stock for the sell portion?
    #10     Sep 4, 2003