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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