Q&A
Since You Asked
| Professional trader Don Bright of Bright Trading,
an equity trading corporation, answers a few of your questions. |
Don Bright of Bright Trading
|
NYSE VERSUS NASDAQ 100
I have been reading and enjoying your Q&A comments in STOCKS
& COMMODITIES, and I found something that I would like to get further
information about.
I am retired from the US Navy and have been swing trading from my
home for the last five years. I have been active in the market since the
mid-1960s, but avoided active trading until I retired and had good access
to the Internet, along with the cheap quotes and lower commissions that
made trading versus investing possible for me.
In recent years, I have successfully traded stocks like DELL, RFND,
AMAT, RMBS, and SUNW for nice profits. I generally trade one to two thousand
shares per trade, and hold for one to five days on average. I use RealTick
and Schwab Velocity for my trading. In one of your comments, you stated
that you only trade New York Stock Exchange (NYSE) stocks with daily volume
of two million shares because of your distaste for market makers. Could
you provide more insight into this thought about trading NYSE stocks rather
than Nasdaq 100 stocks? Also, don't the specialists at NYSE have control
over movements and prices obtained on the NYSE, just as market makers have
on the Nasdaq?
Finally, you mentioned a few stocks for beginners on NYSE like WMT
and GE. Would you provide a few more prospects for more advanced traders,
and explain what you like about these stocks that makes them great trading
stocks? Thanks. -Don Green
I personally prefer to trade listed stocks because the strategies I
use cannot be performed on OTC issues (opening-only trades, MOC orders,
and the like). But we at Bright Trading have many traders who like to trade
the Nasdaq. I feel that the market makers have had quite an edge over others
in the past (and still do in many respects), but the new trading technology
and trading platforms have leveled the playing field a little. We have
finally been able to lower costs for our OTC traders down to the same levels
as listed, and this makes OTC trading more palatable.
I really cannot suggest stocks to trade, especially in this forum. We
try to teach strategies and techniques that can be put to use in an array
of securities, and I feel that each individual trader should pick his or
her own. I personally have been entering opening-only orders on 13 different
stocks every day, and trade around two to four pairs, all listed. But since
the costs are reduced, and the access is better, I am looking forward to
more Nasdaq trading in 2002.
TICK CHARTS FOR S&P
I am still in the early stages of learning to daytrade the e-mini
with consistent success, and I would like to learn more about the use of
tick charts. The shortest time frame I currently use is the one-minute
chart, but I understand there may be significant advantages to using tick
charts as well, perhaps of varying lengths (numbers of ticks). Can you
offer any guidance?
I imagine that as a tick chart is constructed from a selected number
of ticks (such as 25, 75, 144, and so on), volatility (or do I mean volume?)
is effectively built in, as the more trades there are, the more frequently
the bars will appear. I have heard the comment, "Now that I use tick
charts, I would never use regular time charts again (for daytrading the
e-mini)," and I am wondering whether you would concur with that statement.
- J-Trade
Tick charts of the Standard & Poor's 500 and the e-minis are a must
for any trader (futures or equities), since they give you the immediate
"tone" of the crowd. Many traders don't seem to understand that
a tick is simply a trade, and in a one-minute time frame, you may have
50 ticks or more. The individual ticks are not as important as the
group trend, upward, downward, or lateral. You must also have a premium/discount
window to show the trades as they relate to the day's current fair value,
or else the ticks lose their meaning.
You can always get fair value from www.programtrading.com (which includes
the difference between long and short money in their calculations). Hope
this helps.
J-TRADE'S FOLLOW-UP QUESTION
Thanks for the answer, but I'm still not clear on one thing: Isn't
fair value calculated using yesterday's closing value of the S&P? If
the answer is "yes," then what use would it be for intraday trading?
The difference between the value of the index and futures will vary all
the time during the trading day. The only thing that stays constant throughout
the day would be the interest rate and dividend rate (which are also part
of the fair-value calculation). - J-Trade
The fair value, although calculated using the previous day's closing
prices, is basically constant for the next day's trading. Assuming two
points are added to the spot price of the S&P 500 index (to get to
"fair value"), then if the futures are trading at five points
over the spot price, you see a three-point premium that have to either
translate to an upswing in the underlying (500 stocks), or an immediate
downturn in the futures. Since the floor traders and institutions are constantly
hedging, this result is consistent.
OPENING-ORDER BROKERS
I'm looking for a broker with low fees with whom I can place opening
orders. Fidelity is the only broker I have found that has this type of
order on its online trading platform. I found another broker who takes
market orders prior to the opening, as well as "fill or kill"
orders prior to the opening. They say that the specialist will treat this
type of order exactly like opening orders. Is this true? Thank you.- JJ
The problem you may encounter is that most brokerage firms will not
allow you to put in a buy and sell order on a single stock at the same
time. This is the basic strategy that I assume you are referring to. You
can always put in a market order, but that defeats the purpose; you will
always be on the wrong side of the opening trade. The strategy is to be
on the same side as the specialist, and that is usually the accommodating
side. When there is a big buy imbalance (more buyers than sellers), then
the specialist must accommodate the order by selling stock, and cannot
participate by adding to the imbalance.
If you simply want to place opening-only orders (one-sided), then most
retail brokers should be able to help you. This is not generally a good
idea, however.
Many brokerage houses sell order flow (handing off market orders) to
allow for cheap commissions to their customers. Some will let you trade
for free, but again, your trade executions will not be as good.
PORTFOLIO-FORMATTED DATA
I am looking for a free or for-fee website where I can enter one
or more portfolios of stocks and mutual funds and receive daily updated
values of the trailing one-month total return for each stock or fund. Morningstar
has the information each evening for funds, but even as a premium subscriber,
I can't receive it in a portfolio format. Thanks and keep up the great
work. - Rick Petticrew
I really don't know of any service that does exactly what you have asked
for, but most data vendors will allow you to "build your own"
portfolio analysis. This can be as simple as an Excel spreadsheet updated
with live (or delayed) pricing for any issue that has a trading symbol.
Some brokers will allow similar portfolio management on their proprietary
software. You might try myTrack or Neovest for this.
RELIABLE CHART PATTERNS
Which chart patterns do you find to be the most reliable? Also, do
you have any comment on Thomas Bulkowski as a writer for Technical Analysis
of STOCKS & COMMODITIES? He wrote a book called Encyclopedia
Of Chart Patterns that I purchased recently. - Travis
When I use charts for identifying characteristics of a stock for trading,
I try to determine the reason for the pattern's development in the first
place. One of the first things I try to teach my college students who are
interested in charting and other basics of trading is that patterns develop
for a reason, and this reason is the motivation for the pattern formation,
not vice versa.
Let me use this example: If a stock is trading in a trough between $35
- 45 for a time period, we would naturally assume that the support is at
$35 and the resistance at $45, which will help with the trading decision.
Now let's try to figure out why this pattern is developing: The first thing
I do is check for dividends, and if there are any, I check to see what
the dividend yield was at the lower (support) price. It often turns out
that there is a good yield at that level based on current interest rates
and other market conditions. When the stock moves up to the resistance
level, the opposite occurs; the stock is no longer a good "value"
based on the dividends received, and investors may look to move their money
to cash or other securities. Keeping this in mind should make it easier
to determine which patterns will be of use to your trading strategy.
Editor's note: Coincidentally, in this very issue we are running
an article by Tom Bulkowski on throwbacks and pullbacks.
Don Bright is with Bright Trading (www.stocktrading.com), a professional
equity corporation with offices around the US. E-mail your questions for
Bright to Editor@Traders.com, with the subject line direct to "Don
Bright Question."
Originally published in the June 2002 issue of Technical
Analysis of STOCKS & COMMODITIES magazine. All rights reserved. ©
Copyright 2002, Technical Analysis, Inc.
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