Wednesday, October 17, 2007

Trading Strategies

I'm putting together a suite of several different trading strategies. Diversification is good as it leads to more stable returns. Here are some candidates:

1. Trading the "model": I'm planning on making very small trades initially. My approach will be to buy 100 QLD shares are hold them (QLD is a two times levered QQQQ fund). Then when I go short, short 1 NQ contract. This will mean my long and short exposures will be roughly half an NQ contract or 400 QQQQ shares. Very small trades. Over time I'll increase the trade size as my confidence increases. Then the QLD position will play the function of eliminating the model's slightly bearish stance. My own trading has typically had an even more overly bearish stance as measured by my beta to the market. Eliminating the negative beta raises the Sharpe Ratio of the model strategy. These trades are systematic technical analysis based trades.

2. "Overnight trades": These trades may be either in the model direction or against it. As the market is typically less volatile during the US overnight these trades would increase my exposure. Trades would be typically put on at the US market close (when we change our clocks here and that will then be 8am Canberra time) or around the Australian open and closed either soon after the European session opens in the Australian evening or around the US open depending on opportunities. These are discretionary, opportunistic trades based on news and technicals to some degree and some degree based on the model.

3. SPI: This is the Australian "Share Price Index". I'm currently doing simulated trades on the Interactive Brokers platform to get an idea of the best way to trade this. The Australian market tends to follow the US lead on the whole. Trades will probably be made near the market open here. The futures open 10 minutes before the actual market. But the market itself takes 10 minutes to open all stocks, with each stock opening in alphabetical order over those ten minutes. So there is a lot of uncertainty about market direction until 10:10am. When is the best time to place a trade? These trades are similar to the overnight trades in nature.

4. Closed-end funds: I have a couple of longer term trades of this type currently open. The idea is to buy a closed end fund when it is selling at particularly steep discount to the fund assets and sell when it is near or above intrinsic value. This is a strategy used by the TFS Market Neutral Fund. I am trading Australian funds. This is trading on fundamentals. Though I also have technical indicators here.

5. US Earnings: I've made money trading US stocks after hours after their earnings release. I'm planning on giving Google a shot this Friday morning our time. I bought a new battery for my alarm clock to wake up in time. During our summer this will be easier as the US market close will be at 8am. "Daytrading" the news.

1 comment:

Anonymous said...

For online share trades we use