GREY1's APPROACH TO TRADING US STOCKS

[jmreeve]

My experience of trading pairs is as I have said and if you dont believe this then fine but I have posted trades on here in realtime demonstrating this. I presume that you take the view that in any trade the chance is 50 / 50 and yet Grey1 has consistently demonstrated that his accuracy level is nearer 95%


Paul

The expected outcome over a fixed period of time is that 50% of the time price of the pair should end up higher and the other 50% lower. Within this time period it is possible to have trades with a whole range of different % wins and win/loss ratios. Hence, I do not doubt that you are achieving 75% win ratio but this is more likely as a result of your entry/exit strategy and not specifically because it is a pairs trade.

 

[Trader333]

The expected outcome over a fixed period of time is that 50% of the time price of the pair should end up higher and the other 50% lower

In a pair trade one stock is Shorted whilst the other you are Long. If price goes up for both then the net P&L is neutral and the same applies if price goes down for both. Again because we are selecting stocks that oscillate then unless an immediate new trend starts they will also oscillate and it is this factor that makes the pair trade work. It is only used in specific circumstances and is not random as you seem to be suggesting has to be the case in terms of the direction that price will take. It is also not a trade that lasts for that long and is usually no longer than 15 to 30 minutes maximum.


Paul

 

[robq]

Trending days are based on the movement of the Dow relative to where it closed the day before. As a rule of thumb if it opens at + / - 50 or more then the day is likley to trend, less than this and pair trading is a good option.



Paul

Paul,

Does this refer to Dow futures, which seem to be traded almost 24 hours a day, or to the INDU.? I ask because, when I look at daily INDU chart on prophet.net the open seems to be always within a point or two of previous day's close.
robq

and this explains why! - so I assume you are referring to futures at 9.30 EST or to the index sometime after that (time for the component stocks to be traded)
http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average
rob

 

[jmreeve]

Trader333

Based on the standard random walk model for stock prices the probability of the price going higher
in a period is 50%.

The price of long/short pair is can be modelled as the difference between two log-normally distributed random variables. However, since the difference is still a log-normally distributed random variable the probability of the price of the pair going higher in a period is still 50%.

The main purpose of using a pair is to try to exploit some tendency for mean reversion between the stocks. The tendency for mean-reversion is a deviation from the random walk model and if it is structural to the market will provide you with an edge.

 

[LevII]

Trader333

Based on the standard random walk model for stock prices the probability of the price going higher
in a period is 50%.

The price of long/short pair is can be modelled as the difference between two log-normally distributed random variables. However, since the difference is still a log-normally distributed random variable the probability of the price of the pair going higher in a period is still 50%.

The main purpose of using a pair is to try to exploit some tendency for mean reversion between the stocks. The tendency for mean-reversion is a deviation from the random walk model and if it is structural to the market will provide you with an edge.

jmreeve

Fascinating academic discussion but reality and theory are often irreconcilable.

Just try it with small but properly hedged position size. You may be pleasantly surprised.

 

[Trader333]

The main purpose of using a pair is to try to exploit some tendency for mean reversion between the stocks.

Jim, I dont doubt your knowledge on the Random Walk Theory but the only purpose I have of using the VWAP pair trading strategy is to minimise the possibility of loss by effectively hedging one stock against another. This is specific to VWAP and not other strategies which I have found do not work. As I have said it has worked well for me and I have demonstrated its use on many occasions in the past.

Robq,

I use the INDU and not futures but bear in mind this is for the trading of stocks


Paul

 

[Grey1]

Trader333

Based on the standard random walk model for stock prices the probability of the price going higher
in a period is 50%.

The price of long/short pair is can be modelled as the difference between two log-normally distributed random variables. However, since the difference is still a log-normally distributed random variable the probability of the price of the pair going higher in a period is still 50%.

The main purpose of using a pair is to try to exploit some tendency for mean reversion between the stocks. The tendency for mean-reversion is a deviation from the random walk model and if it is structural to the market will provide you with an edge.

Hi

Just got home and saw all these posts . Sorry about the delay .

Lets go back to random walk model . The random walk model assumes the data are of stationary type . This is not valid assumption specially in longer time frame .

I have done a lot of work myself in IAS ( institution of advanced studies ) to de compose the two different dara set using various operators.


you also asked how would one know if a stock is oscillating ?

That is simple.

1) stock oscillate when market oscillates and that is when the market goes through consolidation and again that is defined by volume shirinkage . Try any stock of your choice 2 hours after the market has opened. Lack of volume sends the stocks into oscillatory motion even the trending ones..

2) stocks that are not either OB or OS on a daily chart oscillate much more often than OB/OS stocks .

3) Oscillatory stock show equal path of resistance to market movements.


Let me know if u want me to expand on decomposition techniques of financial time series to isolate the non stationary elements within the dat set.

Let me know if i have answered your questions buddy .

grey 1

 

[robq]

[

I use the INDU and not futures but bear in mind this is for the trading of stocks


Paul[/QUOTE]

Paul. $INDU is the DJIA and this is from the Wikipedia article.
"Only a few components open at the start and the posted opening price of the Dow is determined by the price of those few components that open first and the previous day's closing price of the remaining components that haven't opened yet; therefore, the posted opening price on the Dow will always be close to the previous day's closing price (which can be observed by looking at Dow price history) and will never accurately reflect the true opening prices of all its components."

This is consistent with the Prophet.net java charts I looked at. The difference between the open and the previous close was almost always one or two points. On 10th September 2001 the close was 9605. On the next recorded day, 17th Sept, the open was 9580 - down just 25 points. The low that day was 8062, the close 8235.

Rob

 

[Grey1]

can I ask people to add any high probability trading strategy they know to this thread to make this thread a reference thread for all our traders.

Thanks

 

[jmreeve]

Hi

Just got home and saw all these posts . Sorry about the delay .

Lets go back to random walk model . The random walk model assumes the data are of stationary type . This is not valid assumption specially in longer time frame .

I have done a lot of work myself in IAS ( institution of advanced studies ) to de compose the two different dara set using various operators.


you also asked how would one know if a stock is oscillating ?

That is simple.

1) stock oscillate when market oscillates and that is when the market goes through consolidation and again that is defined by volume shirinkage . Try any stock of your choice 2 hours after the market has opened. Lack of volume sends the stocks into oscillatory motion even the trending ones..

2) stocks that are not either OB or OS on a daily chart oscillate much more often than OB/OS stocks .

3) Oscillatory stock show equal path of resistance to market movements.


Let me know if u want me to expand on decomposition techniques of financial time series to isolate the non stationary elements within the dat set.

Let me know if i have answered your questions buddy .

grey 1

My only reason for talking about the random walk theory is that is provides an easy way to illustrate the behaviour of a stock pair. The basic random walk theory has been extended to cover non-stationary behaviour in different time frames. For example, stochastic volatility is now commonly used in market models.

3) Oscillatory stock show equal path of resistance to market movements.
Not quite sure what you mean by this?

Would be interested to hear more about the decomposition techniques you were investigating.

 

[Grey1]

3) Oscillatory stock show equal path of resistance to market movements.
Not quite sure what you mean by this?

.

Path of least resistence is a concept in TA which refers to stocks that exhibit least tendency to move against market direction . ( I am not refeing to high beta stocks here ) .

Stocks with equal path of resistance shadow the the market movements mindlessly .


grey1

 

[Trader333]

[

I use the INDU and not futures but bear in mind this is for the trading of stocks


Paul

Paul. $INDU is the DJIA and this is from the Wikipedia article.
"Only a few components open at the start and the posted opening price of the Dow is determined by the price of those few components that open first and the previous day's closing price of the remaining components that haven't opened yet; therefore, the posted opening price on the Dow will always be close to the previous day's closing price (which can be observed by looking at Dow price history) and will never accurately reflect the true opening prices of all its components."

This is consistent with the Prophet.net java charts I looked at. The difference between the open and the previous close was almost always one or two points. On 10th September 2001 the close was 9605. On the next recorded day, 17th Sept, the open was 9580 - down just 25 points. The low that day was 8062, the close 8235.

Rob

Rob,

Sorry I should have said opening 5 minutes, I wasnt referring to a gap open


Paul

 

[robq]

Rob,

Sorry I should have said opening 5 minutes, I wasnt referring to a gap open


Paul[/QUOTE]


Paul,

Thanks for clarification.

Rob

 

[samtron]

can I ask people to add any high probability trading strategy they know to this thread to make this thread a reference thread for all our traders.

Thanks

Nice thought but, sadly but I don't think there are many genuine Grey1's in the World.
viz traders who
a)have a working proven winning high probability strategy
and
b)would be willing to share same with the also rans

 

[TheBramble]

can I ask people to add any high probability trading strategy they know to this thread to make this thread a reference thread for all our traders.

Iraj, a useful selection of high probability trading strategies are already littered over the entire site and unfortunately (or fortunately, depending on your viewpoint), don't number that many. But certainly enough to allow any soul competent in basic comprehension and wit the ability to earn a decent living from the markets - all other factors being duly considered and catered for.

I myself have outlined channel and basic S&R strategies (boring, but my bread-and-butter in addition to directionals and vwap [V1.0!]) a number of times in different fora, but unless you happen to post one of these strats on the precise day a bod is looking for one, they get lost, along with most everything else, in the apparently unsearchable vacuum that is the black hole of personal inertia and sagging, possibly non-existent individual motivation that prevents most it would seem from being able to to do anything other than 'check new posts' to see if someone has posted the holy grail today.

Apart from which, this thread is very specifically your approach (and most welcome too IMO) and one which many of us are keen to have you maintain the momentum and direction yourself without it being diverted off down and into the same-old same-old tangents, digressions and divergences that will normally evolve in any thread.

Plus, you're going to have some damn fool BAT-VECTOR float their latest offering to the universe here and then end up with a few hundred posts of nonsense completely derailing your train of thought, and our concentration, which it has to be said, is sorely stretched at times already.

Keep it clean. Keep it Real. HOT Stocks sux. VWAP kicks donkeys...

 

[Grey1]

Samtron ,,

As soon as i take care of the new arrival to my life i will take more people to coach . I love giving people and receiving from all mighty God in return . I donot like to meet people in dark streets and in hotels where there is no access to computer and charge them big lump sums.

I will be contributing a lot more in days to come

When i looked at my VWAP engine this morning there was a blood bath on the screen and i KNEW market would fall but did not know much . Hence the first short signal and i was rewarded $ 1410 in no time .

Just look at the JOY G @ 15.16 the rest is history what an awesome solid signal ..

 

[Grey1]

Iraj, a useful selection of high probability trading strategies are already littered over the entire site and unfortunately (or fortunately, depending on your viewpoint), don't number that many. But certainly enough to allow any soul competent in basic comprehension and wit the ability to earn a decent living from the markets - all other factors being duly considered and catered for.

I myself have outlined channel and basic S&R strategies (boring, but my bread-and-butter in addition to directionals and vwap [V1.0!]) a number of times in different fora, but unless you happen to post one of these strats on the precise day a bod is looking for one, they get lost, along with most everything else, in the apparently unsearchable vacuum that is the black hole of personal inertia and sagging, possibly non-existent individual motivation that prevents most it would seem from being able to to do anything other than 'check new posts' to see if someone has posted the holy grail today.

Apart from which, this thread is very specifically your approach (and most welcome too IMO) and one which many of us are keen to have you maintain the momentum and direction yourself without it being diverted off down and into the same-old same-old tangents, digressions and divergences that will normally evolve in any thread.

Plus, you're going to have some damn fool BAT-VECTOR float their latest offering to the universe here and then end up with a few hundred posts of nonsense completely derailing your train of thought, and our concentration, which it has to be said, is sorely stretched at times already.

Keep it clean. Keep it Real. HOT Stocks sux. VWAP kicks donkeys...

Tony

I wish i had yout wit and your command of English , . Trader333 and myself are certainly a fan I LOVE IT lol

grey1

 

[Grey1]

I am done for the day to watch the brazil match . Adios


Mr market 0 Grey1 $1779.98

 

[Grey1]

STOCK CHOICE


There are many stocks available for trading but only few percentage of them are suitable for active day trading

These are the minimum requirements for choice of stock

1) MINIMUM INTRA DAY VOLUME 2.5 Million
2) Low spread Preferably 1 C . Up to few cents is still OK
3) Stock with Minimum ATR of $1

You can use the link below to short list the candidates


http://www.marketscreen.com/report/index.asp?chp=technical



Grey1

 

[Trader333]

3) Stock with Minimum ATR of $1

Personally I dont require the volatility to be as high as this but an ATR this high will certainly reduce the number of stocks to choose by a large factor without even considering the other filters listed.


Paul