Bright Trading Retreat Trading strategies that I use & the trading rules that govern them
I) Market neutral trading in sectors and market making in “children” stocks • Currently my most productive strategy • I have a list of stocks regularly trade and am very familiar with • Follow the sector ETF, S & P 500, 10 year bonds • Trade these “children” securities in each sector with either long or short bias dictated by market and sector trends • Hedge positions 50% or more (this changes with my opinion of the direction of the market, and other securities within that sector)
II) Day Trading • Works best in high volume high volatility like 2008 • I go “Dime Hunting” • Watch “children” & stocks on the move and in the news (Banks, Fannie Mae, Tyco, Enron, Internet Bubble) • Ratio pair day trading • Trade highest correlated pairs with most predictable ranges on range bound days using 5 minute – 60 minute e-Signal charts • Tape Reading • Watch for internalization, sub penny activity, and black pool trades on the tape for “tells” for short term trades.
III) Ratio Based Pair Trading • Seek highly correlated pairs in e-Signal using day charts. Swing trade positions. • Rob Friesen and PairTrader.com • Darren’s ratio • Accounts for 10 to 20% of my profits • Favorite trade set ups • Range bound pairs at range high or low with not trend and regular price action • Trending pairs: Trade from a position of strength, add to winners, exit losers. (also can be used when trend trading futures, ETF’s, currencies, and other securities) • Range bound pair with brief trend: Wait for move to end then enter the trade using recent high or low as a stop loss point.
IV) Special Edge TradingThen and Now • Then • Fractions • ECN and Exchange arb. Early 2000’s • NYSE price improvement strategies early/mid 2000’s • Open Book trading (leaning on large bids and offers for short term day trading) • Stocks lag futures (follow moves in e-minis buying and selling “children” stocks)
Now • Tape based day trading • Look for these “tells”: heavy sub penny internalization action and dark pool action selling or buying • OO’s & MOC’s (see Don) • Stat. arb. charting and programming availability • Back test programs • Automation • Proprietary edges
Trading Rules and Principles that govern my trades and trading strategies
1)The only constant thing in trading is change. • Either adapt to it • Overcome it • Or get run over by it “The dogs bark and the caravan moves on” Ancient Proverb
2) Be the Casino • Approach trading like a casino approaches gambling • Keep the odds in your favor • Coin flip example • Play the odds
3) Look for the highest probability of profit over the highest profit potential • You win more baseball games with singles than home runs.
4)Don’t be a one trick pony • Always stay on the lookout for new ideas and strategies
5. Don’t lose money • When a strategy begins to lose money I quickly decrease my trading size. • The strategy is now dormant. • When a strategy is dormant don’t worry about how much you are making. The goal is to make it profitable again at which point increase your size.
6) Increase your trading size when making money. • When your strategy is consistent start to increase your position size and focus more time finding ways to expand the working strategy.
7) Focus on what you are good at • Howard Gardner’s multiple intelligences. • Would you ask Einstein to compose a symphony or Mozart to teach the theory of relativity.
8) When in doubt get out! • Doubt most likely means things are not going as planned or things have changed. • Doubt will cloud your decision making • You can always get back in when things line up in your favor.
9)My Trend Trading Rule • When trading the trend play with your offense not your defense • Add to winning positions and cut losers • Don’t pick tops
Admit mistakes quickly and often • Don’t be stubborn • Being wrong is part of a winning strategy • Have you reached your wrong quota this month?
11) Always plan for the worse case scenario. This applies to trading and managing your trading capital.
12)Don’t step in front of a speeding train. • Wait until the train stops and turns around before you climb on board.
13) Keep it simple • The Harvard MBA and the master programmer that had the unfortunate job of trading.