2013issue C0129

Prove opening and pairs rules before automation

Lock the opening-only procedure, the pairs hedge, and the skip rule as one hand-run sequence. Encode that same sequence later so programs only add names and cover speed.

Write entry, cover, and skip rules so they can be fired by hand before any order-routing code is added.
An opening-only procedure posts predetermined prices before the auction, seeks fills at extremes, and then covers.
A pairs hedge limits single-name exposure relative to a one-way trade because paired stocks tend to follow one another.
Encode openings, fishing orders, market-on-close orders, and pairs strategies from a hand-tested procedure, not from hypothetical cases.

Entries in this reading3 entries

Current trackOpening auction strategy28 readings Pairs trading70 readings Rule-based entry292 readings

Single-name news flow and the pairs hedge

News-reactive single-name trading is described as competitive because some traders already scan multiple data vendors for keywords and immediately review and trade other symbols in the same sector. A directional trader is described as needing constant news awareness on held names. A pairs hedge is described as limiting single-name risk because paired stocks tend to follow one another.

Rule-based entry uses predetermined prices and conditions to decide whether to enter, cover, or stand aside. The rule is not rewritten at the moment of the trade.

The opening-only procedure

An opening-only procedure places orders at predetermined prices before the open, seeks fills at extremes, and then covers. That sequence is the rule set, not a later software feature.

Software around that opening procedure is described as allowing more symbols and more shares to be handled and as placing immediate retracement covers.

The ex-dividend hold

Dividend-oriented pairs work is described as subjective and time-intensive. It is also described as requiring prior study of the pair, the viability of continued dividends, and the major shareholders.

The described sequence is an ex-dividend hold. The dividend-paying stock is held on the ex-dividend date, and the other pair leg stays on so net exposure stays reduced while the later price path is observed. Retail dividend tax consequences are identified as changing in 2013.

Manual-first automation

The stated automation sequence is to specify a strategy that can be executed manually and only then improve it with technology. That is manual-first automation: entry, cover, and skip rules can be fired by hand before any order-routing code is added.

Openings, fishing orders, market-on-close orders, and pairs strategies are listed as procedures that trader-modifiable programs can perform. The stated preference is to encode a hand-tested procedure rather than to build programs from hypothetical what-if cases. A fishing order is grouped with openings and market-on-close as a candidate for the same programmable rule set.

Educational research material, not investment advice. Historical source context does not establish present-day performance.

9 of 9 in the Opening auction strategy track

1988Track finished · Next track: Opening range breakoutEarly entry as the session switch for an opening-range breakout50 readings

All readings on this track · 9 readings

By fieldEntry and exit rules327 readings By year2013169 readings

All 28 readings tagged Opening auction strategy

Also on Opening auction strategy5 readings

2002Opening-only orders, posted stops, and paper fills as first-class rules 2004Opening auction envelopes and crutch pairs 2005Pair-bias bands and opening-print priority 2008A case study of checklist-driven opening-auction and pairs work 2010Same-side opening auctions and pair use of capital