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Hi Yuki,
Thank you for your thorough reply.
I did some research on opening price determination and discovered that
NYSE stocks' opening prices are determined by the bookmakers, whereas
NASDAQ opening prices are determined by the Opening Cross, computers
considering market and limit orders that are "open" at the market open
to determine the opening the price.
As you mentioned, it's possible that some big boys out there
deliberately manipulate the opening price, if I were a big fish out
there...on NYSE and NASDAQ. As far as I studied, however, NASDAQ
seems harder to manipulate since it's all computer-based. What I
liked about NASDAQ is, once Opening Cross determines the "open price,"
all the market orders that are "open" will be traded at that price. I
think I will only trade on NASDAQ from now on.
Now, you were absolutely right about trading on high-liquidity stocks.
I've paid my dues playing stocks with low volume and grabbed some bad
prices before, so I'm integrating volume into my system so I don't
grab them.
Regards,
intermilan04
--- In amibroker@xxxxxxxxxxxxxxx, Yuki Taga <yukitaga@xxx> wrote:
>
> Hi intermilan04,
>
> This is, of course, not a one-size-fits-all situation. It is one of
> the reasons a particular system designed to buy or sell *anywhere*
> will produce somewhat varied results with varied instruments.
> Liquidity varies from symbol to symbol and market to market. Make a
> note of that. ^_-
>
> I never buy on the open -- ever -- unless I'm fading a sharply lower
> open, or covering. I sell a lot on the open, particularly into
> strength. I'd only short on the open to fade power, never to chase.
> But I don't short much these days anyway -- for the same reason I
> play the Don't Come bar instead of the Come, when I'm feeling silly
> enough to do something like gamble, where the odds are always against
> me anyway. But that doesn't mean you shouldn't buy on the open, or
> short. It's just my personal preference.
>
> But ... I don't expect to be able to sell 20,000,000 yen value of XYZ
> company on the open as easily as I can sell 20,000,000 yen value of
> ABC company. By and large, I look for vehicles with the liquidity
> that I require, and ignore the rest. I absolutely don't care about
> stocks that are not really, really liquid. Occasionally, I make
> exceptions, but the exception is always accomplished by reducing
> position size, to accommodate reduced liquidity, which is another way
> of saying to accommodate higher risk.
>
> You should know a few things if you don't already ...
>
> 1) When you put a market order in prior to the open to be executed on
> the open, member firms can probably see it. I mean size, price,
> margin or cash -- the works. They know who you are and what you are
> doing, or at least they do over here. I can't speak for all
> countries or exchanges of course, but I would assume when it comes to
> money, there are people with an edge, legal or illegal. When it
> comes to money, people with an edge usually can be expected to
> exploit that edge.
>
> 2) You should be trading positions that are inconsequential to
> typical opening volume, if your plan is to buy or sell there. In
> other words, if you *care* if they see your order, you are trading
> too large for the liquidity. If I'm selling 20,000,000 yen value on
> the open, it had better be into a market that typically does nearly,
> or even better, more than, a trillion yen value turnover on the open.
>
> This isn't rocket science of course, but the main thing is, you want
> to be either invisible, or inconsequential. If you are consequential,
> and visible, somebody with deeper pockets than you might develop an
> interest to see just how strong your stomach is. Always remember
> that you are playing in a field where there is an enormous disparity
> of size. Some people can blow, on a whim, with regularity, what to
> you would be consequential money. It's just that, to them, it's
> pocket change, or other people's money -- or both. If they can see
> you, and they smell weakness, I guarantee they will come after you.
>
> Most players understand these ideas instinctively, and so most member
> firms don't spend a lot of time looking over all the pre-market
> trades. But put something in worth noticing, and don't be surprised
> if it gets noticed.
>
> So, if you are not trading more than a percent or so of opening
> volume, I wouldn't worry about it very much. The more your
> percentage of opening volume rises, the more risk you take on trading
> there. If you are trading a very small fraction of opening volume,
> you simply aren't worth jerking around; anyone who tries to jerk with
> a deep market takes on enormous risk themselves. So you won't get
> jerked around if you don't make big ripples, so you probably have
> nothing to worry about if that is the case.
>
> Of course, the less *absolute* liquidity there is (we have been
> talking relative liquidity so far), the more volatile openings are
> going to be. In that case, you need to *really* sneak in and out,
> probably. My advice in a nutshell: Stick to *very* liquid stocks, and
> when you can make a consistent living at those, very, very carefully
> step out and see how you do where the risk is, I guarantee you,
> higher.
>
> If you don't know exactly how your market works (as you indicated),
> you'd better learn. If you trade vehicles with low opening liquidity
> ... you need to know what your risk parameters are, and if the
> liquidity isn't sufficient to accommodate those parameters, you need
> to cut your position size until you achieve a fit.
>
> This is a tough business full of very smart people, many of whom are
> honest, and others who would sell their sisters to a complete
> stranger if the price was right, maybe even at a discount. This is
> the great watering hole of planet Earth. Clever animals can quench
> their thirst, but a lot of bad things happen around most watering
> holes, too. Keep your eyes open and your wits about you.
>
> Lastly, never expect to get 100 percent of what your system does in a
> backtest. Develop a really good system, so you don't have to. ^^_^^
>
> Yuki
>
> Tuesday, August 15, 2006, 3:30:37 PM, you wrote:
>
> i> Hi all,
>
> i> I'm just curious if anyone here are buying and selling securities
> at
> i> the open with market orders, i.e. orders are placed BEFORE MARKET
> OPEN
> i> and they get executed as soon as the market opens.
>
> i> I have noticed that buying at the open might help you get cheap
> i> shares, but the reverse is also true...you might sell your shares
> at
> i> really bad bids.
>
> i> The reason why I'm bringing it up is, my system on Amibroker is
> i> designed to trade at the open. And strangely enough, my system
> isn't
> i> doing too well ever since I started using it...perhaps it's
> because
> i> I'm getting bad bids and asks by placing market orders overnight?
>
> i> I'm not quite sure how the first trade occurs, in theory I sell
> to the
> i> highest bidder but with low liquidity of pre-market trading, what
> if
> i> the highest bid is absurdly low?
>
> i> Any thoughts on this is greatly appreciated.
>
> i> Regards,
>
> i> intermilan04
>
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