Q&A
Since You Asked
| Professional trader Don Bright of Bright Trading (www.stocktrading.com), an equity trading corporation, answers a few of your questions. | 
Don Bright of Bright Trading |
FOLLOWUP: ECONOMIC POLICIES
Thank you very much for the useful information in your December 2003 column! I now have another question: do the general economic policies of a country have an impact on the variation of the value of stocks? - Satinka Xo
Absolutely! As we grow into a true global economy, we must always consider such things as currency exchange rates, import and export policies, price controls, and of course, the labor markets. If products are taxed too heavily, or their import/export duties favor one company's product line over another, this could have a significant effect on the company's expansion, thereby affecting its growth.
You might want to research recent legislation about the steel industry; some call the policies "protectionism," while others praise the policy as good for America (this is not a political forum, so I'll let you decide how you feel when you do the research). Don't forget about the Federal Open Market Committee (FOMC), as well as the Federal Reserve Board and its influence on interest rates. The rates have more effect on some stocks (such as financials) than others, but nevertheless affect the overall investing atmosphere. Good luck, and keep up your interest.
BIG BOYS
If I enter an order, do the big boys know it is a stop or just a new position? Can they try to hit my stop to knock me out? I am talking about the electronic futures at the Chicago Board of Trade (CBOT), Chicago Mercantile Exchange (CME), and Eurex. Regards - Gerry Quick
Okay, I'm going to pass the ball a bit here, and suggest that you check out the three websites: www.eurexchange.com, www.cme.com, and www.cbot.com. They all have excellent access to rules and regulations. The CME even has a phone number to call for help.
I spoke directly with the CME help desk, and they were kind enough to call me back to explain the following: The emini quotes show only depth and breadth (the order price and size), not the type, nor who or where the order came from. They do not distinguish between stop orders and any other type of order.
I don't think you'll have too much trouble with stop orders on any electronic exchange. The breadth and depth of the markets should more than compensate for any possibility of shenanigans by other traders or exchange members. We prefer not to use stop orders for any equity trading, but find that they can be used in futures trading.
CONTRACTS AND EXPIRATION
The March 2003 issue of S&C has an article on the QQQ by Misha Sarkovich. On page 28, item 8, Misha writes: "The QQQ contracts do not expire." Please help! I do not understand; I thought all contracts expire. Thank you - Bill
The QQQs (the ticker symbol for the Nasdaq 100 Trust) is an exchange-traded fund (ETF) that trades on the American Stock Exchange (AMEX) and is also listed on the New York Stock Exchange (NYSE). It trades like a stock on other ECNs. Perhaps you may be thinking of the ND, which is the futures contract that uses the Nasdaq 100 as the underlying. These contracts expire every three months starting in the March quarterly cycle. (See the current listings at www.cme.com.) ETFs trade just like stocks, and you can buy and hold them if you wish, or trade them intraday. The futures contracts that use the ETF as the underlying trade just like other futures and convert into cash value upon expiration. The value of the Nasdaq 100 upon expiration will be the conversion cash price.
ENVELOPING
In your experience with intraday enveloping (not on the opening), shouldn't we be enveloping only when the markets get quiet and illiquid (generally during the 11:00 am to 2:00 pm "New York Lunch")? Is it true that we should generally not have envelopes in when the markets are moving? Does this also hold true for the pair trading strategy (yes when quiet, no when moving?) Thanks for the help - Guy Truicko
First off, we are not suggesting too much in the way of simple pair trading these days (at least not in the same context as in the past). We focus much more on crutch pair trading versus correlation modeling. Our pairs specialists are constantly modifying their approach to this tactic.
As far as enveloping goes, yes, we want to focus on making nickels and dimes during the slower part of the day. It's not so much a matter of busy versus slow (time of day), but more a matter of trending versus channeling. During the NYSE "lunch break," we can certainly keep tight envelopes and do well.
E-mail your questions for Bright to Editor@Traders.com, with the subject line direct to "Don Bright Question."
Originally published in the January 2004 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2003, Technical Analysis, Inc.
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