GREY1's APPROACH TO TRADING US STOCKS

[robq]

samtron,

We dont take a trade simply because there is more rewards in taking it , we taking it when the set up is there.

When VWAP trading we only pair trade stocks that are touching their upper and lower bands. This way we eliminate the market direction which is the root of all evils lol

Under no circumstances a trader should take a directional trade using the vwap strategy .

Grey1. The above seems to contradict what you wrote on 01-02-04, or are you referring to different vwap strategies.
robq

grey1

(01-02-04
These are the rules of engagement in a VWAP trade..

Market is strong with DOW open + 50..

1) We don’t pair trade when market is strong .. We only take a directional trade
2) We only go long ..
3) We go long when price approaches Lower band
4) We fine tune with MACCI ( MACCI is slowed down version of CCI and eliminates much noise those with TS please PM me for the code ).. MACCI is a secondary tool
5) Further fine tuning with L2.. Make sure there is not a series of bidders sitting much further than your entry
6) Deduct the lower VWAP price from the VWAP and make sure there is enough meat in the trade.. For example if the VWAP is 30 $ and lower VWAP is only 29.80 then your max gain will be 20C.. is this what you want ? .. Make sure your possible reward ( the max gain ) is much greater than your risk ( stop loss). No point to get only 20C from a trade if you only trading 100 shares..

Reverse above for short position .. Short ONLY from the upper band VWAP when market is – 50 .



Market is oscillating 50 > DOW > -50

You can take both directional and pair trade positions.

1) Short a stock with price near its upper VWAPO and simultaneously long another stock with the price near the lower band .. This should result in a market neutral position ..
2) If you can not find two good candidates then directional trade.. Since the market is oscillating you can go both short or long on the day .

3) Follow rule 4 above
4) Follow rule 5 above
5) Follow rule 6 above

If you pair trading always put your short trade first.

Stick to these rules and for get about predicting the market direction .. Don not bring any other rules of trading you know from the past into this strategy.. Once you totally know and understand the strategy then test drive it for 3 days.. and post your results on this thread.. All trades . GOOD . BAD , UGLY

Exit :-- We exit when price hits the VWAP

 

[Grey1]

(01-02-04
These are the rules of engagement in a VWAP trade..

Market is strong with DOW open + 50..

1) We don’t pair trade when market is strong .. We only take a directional trade
2) We only go long ..
3) We go long when price approaches Lower band
4) We fine tune with MACCI ( MACCI is slowed down version of CCI and eliminates much noise those with TS please PM me for the code ).. MACCI is a secondary tool
5) Further fine tuning with L2.. Make sure there is not a series of bidders sitting much further than your entry
6) Deduct the lower VWAP price from the VWAP and make sure there is enough meat in the trade.. For example if the VWAP is 30 $ and lower VWAP is only 29.80 then your max gain will be 20C.. is this what you want ? .. Make sure your possible reward ( the max gain ) is much greater than your risk ( stop loss). No point to get only 20C from a trade if you only trading 100 shares..

Reverse above for short position .. Short ONLY from the upper band VWAP when market is – 50 .



Market is oscillating 50 > DOW > -50

You can take both directional and pair trade positions.

1) Short a stock with price near its upper VWAPO and simultaneously long another stock with the price near the lower band .. This should result in a market neutral position ..
2) If you can not find two good candidates then directional trade.. Since the market is oscillating you can go both short or long on the day .

3) Follow rule 4 above
4) Follow rule 5 above
5) Follow rule 6 above

If you pair trading always put your short trade first.

Stick to these rules and for get about predicting the market direction .. Don not bring any other rules of trading you know from the past into this strategy.. Once you totally know and understand the strategy then test drive it for 3 days.. and post your results on this thread.. All trades . GOOD . BAD , UGLY

Exit :-- We exit when price hits the VWAP

Hi

No there is not any contradiction . I have how ever made an adjustment in choice of stocks. I no longer use the trending stocks for VWAP strategy and only use those stocks that oscillates . I have mentioned that in my previous posts too .

We back tested the directional trades on the bank I used to work with 6 years of historical and the conclusion was to use VWAP bands for pair trading ONLY or just choose stocks that oscillates than trend






Grey1

 

[Grey1]

Grey1[/QUOTE]


I be coaching 4 people tomorrow from this BB so i wont be trading as much . I how ever still will post my p/L by the end of the day

Grey1

 

[samtron]

Grey1

I be coaching 4 people tomorrow from this BB so i wont be trading as much . I how ever still will post my p/L by the end of the day

Grey1[/QUOTE]
Grey1, good luck today with the coaching, going by my own experience, i am sure all the people being coached by you will have a great day and will be much more knowledgeable afterwards.

 

[gulam]

Risky is when you cannot calculate risk.

Does being married fall into this statement? I can't even put a guaranteed stop on the spending!

Grey 1 excellent stuff and thx all for posting. This thread is very informative.

 

[chump]

"Does being married fall into this statement? I can't even put a guaranteed stop on the spending! "...LOL ,but I'm not sure Grey wants us to investigate genetic risk

 

[Grey1]

We had a special days with some pro traders from the site and we managed to make $ 732 while testing the engine .

Anther day another $$$

 

[Grey1]

what a beautiful day we have with LEVEII, GERARD, VEGAS and another trader whom i donot know his BB nick name . It was a pleasure to see such a pro traders do exist in the country and well done guys.

I set a $800 target to make for the day while demonstrating the advanced technical analysis including various Pair trading strategies and other issues but i managed to win $ 1956.53

This is excellent considering I yapped all day instead of getting on with trading .

All trades were done in real time and I am glad to say all my guests to day have left my house with l food for thought specially the importance of risk management .

Thanks guys for coming

Grey1

 

[jmreeve]

Grey1,

This is an example of a mean-reversion strategy which will make money on US stocks as many of them exhibit strong mean-reverting tendencies.
However, if it were used on a trending market you would quickly be handed your head.

The problem with mean-reversion strategies is knowing when to get out if the market does not
revert to mean. So when you say:

Exit :-- We exit when price hits the VWAP

What happens if it doesn't but just carries on going in the wrong direction?
What is the exit strategy in this case?

 

[Trader333]

If you are pair trading (which is only ever done on none trending days which can be determined fairly quickly), then you have, at worse, a 1 in 4 chance of making a loss as long as you position size correctly relative to the volatility of the stock. I am sure Grey1 will expand further on this.


Paul

 

[Grey1]

Grey1,

This is an example of a mean-reversion strategy which will make money on US stocks as many of them exhibit strong mean-reverting tendencies.
However, if it were used on a trending market you would quickly be handed your head.

The problem with mean-reversion strategies is knowing when to get out if the market does not
revert to mean. So when you say:

Exit :-- We exit when price hits the VWAP

What happens if it doesn't but just carries on going in the wrong direction?
What is the exit strategy in this case?

Hi ,

I have said that few times that we donot choose stocks that trend . we use stocks that oscillate . I demonstrated to day in few example how stocks reverse to mean when they hit the bands provided we choose the correct stocks .

Trending stocks by definition trend and nothing can stop them from trending except severe change in market direction


Grey

grey1

 

[jmreeve]

If you are pair trading (which is only ever done on none trending days which can be determined fairly quickly), then you have, at worse, a 1 in 4 chance of making a loss as long as you position size correctly relative to the volatility of the stock. I am sure Grey1 will expand further on this.


Paul

Re: (which is only ever done on none trending days which can be determined fairly quickly)
How are you determining this?

How do you arrive at a 1 in 4 chance of making a loss?
I don't see how position sizing can have direct influence on the probability of winning on any single trade. It will only change the size of the resulting gain or loss.

 

[jmreeve]

Hi ,

I have said that few times that we donot choose stocks that trend . we use stocks that oscillate . I demonstrated to day in few example how stocks reverse to mean when they hit the bands provided we choose the correct stocks .

Trending stocks by definition trend and nothing can stop them from trending except severe change in market direction


Grey

grey1

Stock selection sounds like it is quite important to the overall success of the strategy.
Can you descibe anything about how you are selecting mean-reverting stocks?

 

[Glenn]

what a beautiful day we have with LEVEII, GERARD, VEGAS and another trader whom i donot know his BB nick name . It was a pleasure to see such a pro traders do exist in the country and well done guys.

I set a $800 target to make for the day while demonstrating the advanced technical analysis including various Pair trading strategies and other issues but i managed to win $ 1956.53

This is excellent considering I yapped all day instead of getting on with trading .

All trades were done in real time and I am glad to say all my guests to day have left my house with l food for thought specially the importance of risk management .

Thanks guys for coming

Grey1

Grey1
Many thanks for an excellent day and for your hospitality.
For you and your beautiful lady to allow us into your home was truly generous and to see you using your engines in real time was a pleasure to behold.
Despite being constantly distracted by telling us what was going on and answering our questions you turned out yet another profitable day. In all my years of trading I have never watched another trader in live action and it was quite a revelation compared to the way I am used to grafting away. I learnt a lot.
Let there be no doubt that you do exactly 'what it says on the tin' and that your approach to risk management is both professional and totally effective.

It was also great to meet the other traders, all of whom had travelled a long way and had such a worthwhile experience for their efforts. I hope that we all stay in touch.
Many thanks again for your generosity and for a real eye-opener of a day. I hope to repay it in some way.
Best wishes to you and yours.
Glenn

 

[LevII]

what a beautiful day we have with LEVEII, GERARD, VEGAS and another trader whom i donot know his BB nick name . It was a pleasure to see such a pro traders do exist in the country and well done guys.

I set a $800 target to make for the day while demonstrating the advanced technical analysis including various Pair trading strategies and other issues but i managed to win $ 1956.53

This is excellent considering I yapped all day instead of getting on with trading .

All trades were done in real time and I am glad to say all my guests to day have left my house with l food for thought specially the importance of risk management .

Thanks guys for coming

Grey1

It's late and I've just got home but I see that while I've been driving you have made another $1,200 ish while watching the football! Whether or not you were drinking beer as well I do not know.

What those looking at the IB screens will not realise is that you were not only yapping you were also distracted into taking a trade when the risk engine told you not to, you bought stocks when you should have sold and sold when you should have covered your shorts!!!!! No wonder you "failed" to achieve the $800 target. Actually you did achieve it but by the time you stopped yapping the trade had gone against you.

Today is likely to have been the most profitable I have ever spent. I and 3 others have not only watched a master at work but we have also had explained to us how to do it for ourselves. It will involve a lot of work but we all know it will be worth it because we have seen it with our own eyes. For those of you not lucky enough to have had Grey1's undivided attention for a whole day (10.30am to 8.00pm) just read this thread as it develops, G1's contributions to the Jerry Olsen thread and the Technical Trader forum. The answers are all there - all you have to do is look, learn then put into practice what you have found.

Grey1, thank you and your lovely lady for your hospitality and kindness. You are both a great trader and a quite exceptional human being. I hope to meet again soon.

LII

 

[Trader333]

Re: (which is only ever done on none trending days which can be determined fairly quickly)
How are you determining this?

How do you arrive at a 1 in 4 chance of making a loss?
I don't see how position sizing can have direct influence on the probability of winning on any single trade. It will only change the size of the resulting gain or loss.

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.

1 in 4 is based on what may happen to the pairing trade. If both do down then the position is neutral, if both go up then the position is neutral if both revert to mean then a profit is made and it is only if both continue going outside their MPD bands that a loss would be incurred. On non trending days the correct selection will make this much less likely than on trending days.

Of course you are correct in saying that the correct stock selection is important and that is what the VWAP strategy is all about and has proven to be reliable (for me at least) over a reasonable timescale..


Paul

 

[jmreeve]

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.

1 in 4 is based on what may happen to the pairing trade. If both do down then the position is neutral, if both go up then the position is neutral if both revert to mean then a profit is made and it is only if both continue going outside their MPD bands that a loss would be incurred. On non trending days the correct selection will make this much less likely than on trending days.

Of course you are correct in saying that the correct stock selection is important and that is what the VWAP strategy is all about and has proven to be reliable (for me at least) over a reasonable timescale..


Paul

The logic behind the 1 in 4 is not quite right because both pairs can go up or both can go down and you can still make a loss. The actual probability of win without the cost of trading and with no other edge is 50% as with a straight trade in the underlying stocks.

 

[TheBramble]

The logic behind the 1 in 4 is not quite right because both pairs can go up or both can go down and you can still make a loss. The actual probability of win without the cost of trading and with no other edge is 50% as with a straight trade in the underlying stocks.

I would argue that any 'straight' trade rarely has a probability 50%. An instrument can go up, down - or sideways. Taking a vanilla position with no other factors considered, yields a basic win probability of 33%. Of course, the vast majority of instruments trend less often than they oscillate , so you'd need to factor that in. And then there's the basic analysis traders do to precisely increase their probabilities of taking a trade which is skewed in their favour by very much more than just 50%.

Getting to the pair-trading issue though, there is a point that is being missed and for me, one of the real benefits of pairs.

Pair trades attempt to capitalise on a non-trending schema by using instruments which have a high probability of reverting to their mean. If both do, double thank you. If they both head off in the same direction, not only do you have your positive trade running - you also get to cut your losing trade quickly. Obviously depends which direction the underlying sector or market is running, but you get to run you good 'un and cut the bad 'un, whichever way it's heading out of Dodge.

The only situations in which your pair trade begins to smell is if (a) BOTH sides of the pair do nothing or (b) BOTH sides of the pair go in the 'wrong' direction. Doing nothing costs you time and dealing costs. 'Wrong' direction on both costs you your stop which with correct risk management and position sizing is just another one of your basic business costs as a trader.

 

[vegas]

what a beautiful day we have with LEVEII, GERARD, VEGAS and another trader whom i donot know his BB nick name . It was a pleasure to see such a pro traders do exist in the country and well done guys.

I set a $800 target to make for the day while demonstrating the advanced technical analysis including various Pair trading strategies and other issues but i managed to win $ 1956.53

This is excellent considering I yapped all day instead of getting on with trading .

All trades were done in real time and I am glad to say all my guests to day have left my house with l food for thought specially the importance of risk management .

Thanks guys for coming

Grey1

Yesterday, I had the privilege of spending the day with Grey1.

Unfortunately, I probably do not have the vocabulary and/or verbal skill to adequately portray my experience and my thoughts on yesterday as it deserves.......however, I shall try.

Firstly (and most important), the man himself. Grey1 is a true gent in all senses of the word. He welcomed all 4 of us into his house (none of whem he knew except from the BB !). He then proceeded to share with us his environment, his experiences, and his home. What this man achieves in his trading is awesome, however, within this, he remains humble. His values are very apparent and most impressive.

There is no agenda here, except to mentor, share and discuss, with the only financial beneficiary been Christian Aid.................how many on this BB can say this and would be prepared (even if capable) to do this ?

Secondly, the man's trading. Now this is something to behold. From his set-up, his engines, his approach and his non emotional but gritted determination and confidence in both his ability and his system.......can only be seen to be believed. Truely amazing. As is his honesty and his acceptance of responsibility for his results, regardless of the intra day challenges (there were a few of them yesterday !)

Grey1, i want to thank you (and your very patient and welcoming wife - can't have been easy to be invaded by traders !), for a wonderful day yesterday - and a great experience.

Postscript, also great to have met the other guys.....hopefully we can stay in touch.

Best Wishes.

 

[Trader333]

The logic behind the 1 in 4 is not quite right because both pairs can go up or both can go down and you can still make a loss. The actual probability of win without the cost of trading and with no other edge is 50% as with a straight trade in the underlying stocks.

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