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
|
ROUND TRIPS
Without the morning play, how many round trips do you execute
in a day? I'm just trying to get a rough estimate for what I should be
trading. Thanks for your help -- Chris Bushell
This is really subjective. It ranges from maybe five or six (when I'm
really busy doing other things) to 100 or more (usually when I'm a bit
stuck and trying to get back into profitability). Unfortunately, I don't
have the freedom to trade all day (I get kind of busy). Remember, this
is an individual sport, and you should be doing enough to make money, but
not so much that you're overwhelmed.
SEVERAL STRATEGIES
How many separate strategies/systems do you trade concurrently?
I feel like I am getting a handle on my strategy of playing reversals in
the S&P e-mini. The problem is, I can go a couple of days without a
good trade, then have a few very nice setups all in one day. If I watch
the e-mini very closely just for reversals, I tend to force patterns where
there are none and make bad trades, and hence lose money.
I have a separate strategy that I am thinking of starting up concurrently,
but it is of a completely different style from my reversal strategy and
is for stocks. I was just curious how many of you out there traded multiple
strategies at the same time and whether you found that it addled your brain
or whether you felt different styles were more complementary. It seems
logical that it would be a good idea to trade multiple systems that take
advantage of completely different dynamics in the market and to lean on
the ones that are performing the best in the current market environment.
Agree? Disagree?
We try to expose our new people to the basic seven or eight techniques,
and teach them how to utilize a few in every decision process. For example,
if you decide to become a pairs trader, you should still look at momentum
for entry points, relative strength for the differential between the stocks,
and of course, enveloping for better prices. And, yes, we even scalp out
of an individual stock when the exit looks likely to be a reversal on the
price.
Those who have tried to stick to one or two trading styles have had
a pretty rough time. It's tough to be a drag racer when the race is full
of curves.
SERIES A
Would you explain what a series A stock (or share) means? Thanks
in advance-- Hammond Wong
Series A stock is simply "preferred" stock that can be converted
into common stock. Preferred stock has priority over common stock as well
(for dividends, upon dissolution, and so on).
DIVIDEND RULES
I came across some info on dividend rules recently when I was
thinking of creating a dividend capture strategy with options. Apparently
the exchange rule is that a stock has to go down by the exact amount of
the dividend on its dividend pay date.
If Abc was paying a dividend Monday, its yield was 0.05, and the
last closing price Friday was 100, the stock price would have to fall by
$5 on Monday morning. I double-checked this rule with my series 7 book
and two brokers. Is this correct?
Great idea, except that if you sell (short) the stock, then you owe
the $5 dividend. These "dividend plays" have been attempted for
decades. If you buy the call, sell the put, sell the stock- buy the stock
the day before, sell the call, and so on, it still won't work, since the
valuations of the options always reflect the dividend value.
There are many ways to make money trading that are much easier -- trust
me.
SPECIALISTS
When I place a trade on the NYSE, what does the specialist know
about my order? Does he know if my buy order is to cover a previous short
sale, or does it just appear as a plain buy order? Any other insights as
to what the specialist knows would be appreciated. Many thanks -- Adam Kahn
Good question! I wish more traders would take the time to learn how
the NYSE specialists work. The electronic limit orders are generally executed
by an associate of the specialist, who monitors the traffic coming in.
Most orders are just seen as buy or sell (or sell short), and are treated
accordingly based on price and time priority. Market orders are handled
by the specialist directly, and are matched up as they come in.
As far as "what the specialist knows"- actually, quite a lot,
but don't fear. Specialists have many restrictions about what they can
and cannot do. For example, they cannot initiate an uptick or a downtick;
they must only participate to keep a fair and orderly marketplace. They
do, however, have access to the depth and breadth of the stocks they trade,
which can be quite beneficial. In my opinion, most specialists have a difficult
task to perform every day, and do a pretty good job of it.
E-mail your questions for Bright to Editor@Traders.com,
with the subject line direct to "Don Bright Question."
Originally published in the October 2003 issue of Technical
Analysis of STOCKS & COMMODITIES magazine. All rights reserved. ©
Copyright 2003, Technical Analysis, Inc.
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