I wonder how people adjust their trades if market is expected to open HIGHER or if market is epxected to open "FLAT" or "LOWER" The night before I do my research and create a list to trade but don't see to find a way to integrate it with market "Open" situation. Any suggestions? Thanks.
We monitor the S&P futures contracts (eMini's) after adjusting the spot price to Fair Value (see www.stocktrading.com/Tradinginfo.htm for example). This gives us the expected percentage of up or down opening points (extremely accurate by definition). You can check my "Don's Openings and More" thread in the Journals section as well. All the best, Don
Don's I've been following your Opening for 2006 but it's a bit above my head since you guys don't state why you are shorting or long on certain stock at open. If you have time...to make it easy can list what your short/long today and WHY? Most I am not understanding the logic behind why certain stocks short/long. I think I've asked this question your Opening 2006 thread but did not get any responses. Thanks
Sure...simple strategy that I've used for decades. All night long the NYSE receives orders to buy or sell shares on the opening, at the opening price, regardless of what the price may be. For example, there may be 500,000 shares to sell of WMT and 350,000 shares to buy of WMT (at any opening price). This leaves an imbalance of 150,000 shares "extra" to sell. The Specialist looks in his "book" for buyers at lower prices until he can fill the order (and he Must be a buyer as well in this example). So, like this morning, WMT opened at 45.82 (down 34 cents. I had a buy order for 2,000 shares at 45.89 (based of FV calculations), and bought 2,000 shares at the opening price of 45.82. At this point, my automated program puts in a sell order for 25% (500 shares) up 6 cents. I sold 500 at 45.89, and the other 1500 shares at varying prices up towards 46.00, making about $250.00. I put in buys and sells on around 50 stocks each morning, at various "envelope" levels, and share sizes. Generally, I put in 2,000 to buy and sell at one envelope (say half of 1 percent on each side of calculated estimated opening price based on FV). I put another 1,000 shares to buy and sell at a wider envelope, just in case the stock really gaps a lot. Very simple, we are trading on the "same side as the Specialist" since he must "accomodate" the opening orders from the needed side. Why not make money with the guy who's been making money for 200 years? There is more to the strategy, and people generally add some nuances of their own, but I figure it should be worth $50K-$100K per year for an experienced trader. Hope this helps, Don
1) How do you know there are 500K and 350K SELL shares? I have level II..not sure where I would see it. After your post I searched ET for "FV calculations" and found some usefull information, some quite varying. 2) For today, what was the FV reading and how you used your formula to come up with buy price of $45.89? and bought 2,000 shares at the opening price of 45.82. I hope I am not wasting your time with this, I seached ET and found quite a few entries for the FV calculation topic I assume your feedback will be quite baneficial to many. Thanks!
1. You don't "know" - and you don't really care, that is why you put in buys and sells (shorts) on each stock at your predetermined prices. Only if the stock "gaps" do you get filled, the other orders are automatically cancelled. 2. Spot price (spx) was about 1426.84, I add today's FV of 10.56 equalling 1437.40, the futures were trading at about 1434, meaning the overall market would open down about .0024%. I adjust closing prices down by that percentage, and then place buys a bit lower, and sells a bit higher (varies depending on several factors like beta, sector, etc.). My orders were 2,000 shares to buy at 45.89 and 1,000 at 45.38 (only filled on the first 2000). My short sells were 46.34 and 46.53. Now a bit of a warning to retail traders. Most brokers won't allow you to place buys and sells on the same stock at the same time, and some won't allow opening only orders at all. This strategy is very capital intensive, but low risk, medium to high reward, especially for time spent. Don't go "willy-nilly' into this without proper homework and hopefully good spreadsheets. All the best, Don
You pose two considerations. Both can be handled daily. I use a preflight check to deal with the beginning of the day. 32 brief considerations. So I will assume we are on the same footing. I use a DAS (Daily Analysis sheet) to review my planning. This corresponds to your list, I believe. The DAS is a confirmation of my lists posted on my computer. One is my total universe another is my owned stocks and the third is my hot list. The hot list is three stocks per money stream that I am planning to cycle soon. I also have pinch hitters for slots where the intended batters do not perorm. So here is what happens that solves the problem you have. It is different than the opening strategy of Don's which is well designed to deal with 50 opportunities per day as an am intraday trade for quick brief profiting. I go for a profit cycle that is the run of the stock across the channel it is trading in. This is position trading that averages 2 1/2 % a day all year long. Entries are based on volume whose trigger lets you have another period of time (an hour or so) before price begins to climb across the channel. My computer lists are sorted by intraday volume(as a % of th 65 day average volume), so the stocks that are best simply rise to the top of the list. This takes the fuzziness of my planning out of the picture by refining the lists by putting them in a specific priority order for trading. My owned stocks flag in making money at the end of the hold period; they are ranked to sell, so to speak. I sell the poorest to have cash to buy the ones with the greatest potential (each stock has a quality "rank", as well) Because of the nature of volume breakout, then price break out, it is possible to just use a sheet with a chart on it to see the specific intraday partial volumes that precipitate buys during any time of the day and especially around open. Usually the stocks at the top of the lists are doing 7% or up to double that by the end of the day in price apprecation. The sheet is attached.
Thanks for posting this Don. I get so many people asking me to spell out the basics of opening orders and I can't find the old old threads that talk about the specifics. So I'll add some of my own info here and then bookmark it for future reference. "Where do you find fair value, and what is it"? http://www.programtrading.com/buysell.htm or http://www.indexarb.com/ The numbers aren't exactly the same, and you can use either one, just try to be consistent in which one you use. Fair value represents the premium of the futures contract to the corresponding cash index. We are generally comparing S&P 500 futures (contract SP or ES) to S&P 500 index. Futures will usually trade at a premium to cash because of the cost of carrying stock vs. cost of a futures contract. For example, if you want to buy all the stocks in the S&P 500 in the right ratios, you will have to lay out several million dollars. There is a cost to doing this, namely the interest you can earn by putting the same money in a risk free government note, the risk free rate of return. However you will also earn dividends on the stocks you own. When you buy a futures contract on the same stocks, you put up much less money to control the same amount of stock. Therefore you can earn the difference in interest, but you aren't entitled to the dividends. Into all this you have to factor how much time until the the futures contract expires (they are dated either march, june, september or december and expire on the 3rd friday of those months). With 3 months to expiry, you have to finance a cash position longer, so the futures premium will be more. At expiry, the futures contract should trade at the same price as the cash index. In a very low interest rate environment with a low dividend yield on the index, the cash can actually trade with a premium over the futures. "How do you calculate your buy and sell prices"? Armed with the fair value number for the day (the 10.56 Don referenced above) we can look at where our cash index closed yesterday, where futures are trading pre-market and we can estimate where the cash index will open. From this we can estimate where each stock "should" open as well. Remember to account for dividends, stock splits and the like. In a nutshell you are fishing for stocks that open too far away from where they "should" for no apparent reason other then some kind of buy/sell imbalance. The thinking goes that the stock will revert towards it's fair value price after the open. How big of a gap is big enough is an open ended question. Smaller gap = lower odds but more opportunity, wider gap = better odds, fewer trades. Most people are somewhere in the .3 to 1% range. "What about beta"? Some use it, some don't. It probably does not make a big difference. I multiply the stock's beta by the size of the market gap when calculating the stock's fair value. "What about news affecting a stock"? If there is some news event that is causing the imbalance then that may be a whole other kettle of fish. Some people trade this strategy with no regard to news, some spend an inordinate amount of time to remove all stocks with news before the bell. Your call. "What is an 'opening order', can I use an ecn"? Your order must be marked as an "OPG" order type. This is a special type of limit order that will either execute on the very first print of the day, and if not executed will automatically cancel. Your orders need to be with the specialist prior to the open, so routing via an ecn won't work. "How do you know what stocks to trade"? You send orders on the same stocks every day. Some people will avoid sectors that are not correlated to the S&P 500, like gold and energy. "How do you enter all your orders, when do you send them"? You will likely need some kind of basket function in your software or a macro to read your spreadsheet and send your orders. If you only have a handful of stocks you could enter them manually. Send your orders any time inside of 10 minutes to the bell. You can send them sooner, but if the futures move a lot from where you sent, your prices could be off significantly. "What about exits, do you use stops"? Once you are in, it's just trading 101. This strategy only gives you an entry with a very slight edge. There is no magic bullet or hard and fast rules how you get out, how you control risk, where you use stops, etc. There is also opportunity cost to consider as the opening is when stocks are most active and this strategy requires attention, so you may miss out elsewhere. If you have more questions, post them here so we can basically have a FAQ for this strategy. I get tired of typing the same thing repeatedly in emails and pm's. I realize the OP may not have been refering to opening orders specifically, so maybe we can summarize this in the opening orders thread.