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Is It Better to Trade a Basket of Stocks or Individual?

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Just curious what everyone's opinion is on this subject.

 

I've gotten to the point where I've grown tired of trading individual stocks at a time. I commonly found myself in a situation where'll I find 3-4 stocks thru my scan for the next trading day, have the market direction pegged, and then end up in the 1 stock that decides not to participate. In the last two days I've passed up what would've been an average of +110 ticks or so if I took positions in all of them. Instead I chose the bad apple and stopped out for losses.

 

BTW, yes I do have a methodology and setup that I trade every single time. However, just because one setup looks like a previous one I had success on, that does not guarantee success. Beyond the impact of market direction, all these stocks have different behaviors, betas, etc.

 

What's been successful for you guys?

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unfortunately you will then walk into another problem by having more instruments....that of correlation when you are wrong.

I dont know if there is one correct answer.

Previously I preferred to have multiple stocks - for largely the same reason you suggest - diversification.....however I also found it worth while putting a limit on how many of these you a....scanned and looked at and

b...hold or trade at any one time (I often found I had too many open and had to limit myself)

 

Alternatively a friend went the opposite way and he went a bit harder at the one he liked the most, and just kept plugging away at improving his "choosing" skills.....and had to just satisfy himself often he choose poorly.

(ultimately he still had more than one trade on at once usually but he preferred to concentrate)

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Just curious what everyone's opinion is on this subject.

 

I've gotten to the point where I've grown tired of trading individual stocks at a time. I commonly found myself in a situation where'll I find 3-4 stocks thru my scan for the next trading day, have the market direction pegged, and then end up in the 1 stock that decides not to participate. In the last two days I've passed up what would've been an average of +110 ticks or so if I took positions in all of them. Instead I chose the bad apple and stopped out for losses.

 

BTW, yes I do have a methodology and setup that I trade every single time. However, just because one setup looks like a previous one I had success on, that does not guarantee success. Beyond the impact of market direction, all these stocks have different behaviors, betas, etc.

 

What's been successful for you guys?

 

 

Best way is to trade a large folio of ETFs and use the cointegrations for hedging.

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From the sounds of it, you should trade more than one stock. If you can't do it economically, then you are better off trading an index instead of trying to call a market with 1 stock.

 

An index won't give you the benefit you might get from selecting weak stocks. However, your weak stocks don't have to go down in a weak market either. Your experience with 1 stock will be duplicated with multiple stocks from time to time.

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It depends on how you trade obviously. However, a decent scalper can make a living off just one good stock like GOOG, AAPL, PCLN, AMZN, NFLX, and many others. I did it for many years before switching to fiutures in 2008; I know other traders that are doing it right now. I think it is far easier to trade just one instrument, but most aspiring traders love to complicate what should be a simple task. Which is just one of the reasons for the high failure rate among active retail traders.

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It depends on how you trade obviously. However, a decent scalper can make a living off just one good stock like GOOG, AAPL, PCLN, AMZN, NFLX, and many others. I did it for many years before switching to fiutures in 2008; I know other traders that are doing it right now. I think it is far easier to trade just one instrument, but most aspiring traders love to complicate what should be a simple task. Which is just one of the reasons for the high failure rate among active retail traders.

 

I believe much of what you're saying as well. Some of the guys I've bounced ideas off of over the last few years have moved entirely into futures. They find technical analysis to be much more reliable in that market.

 

The leverage scares me a little though with $50 a point on the /ES (which is what they trade).

 

But if I'm not in futures, then I'm trying to finally figure out the best thing to do here. Some days I feel like it's spreading my risk. Other days it seems sticking to AAPL options would be the way to go.

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The reason futures seem risky, is that to a large extent you can determine your own level of risk and leverage, much more so than with equities. Just because many futures firms offer $400 intraday margins on ES contracts, does not mean you should take advantage of it. They are attempting to attract the next group of low budget amatuers with those margins; they count on these under funded wanna be traders for business. I believe you should have at least 4k per ES contract that you want to trade. Even if you are an experienced trader, if only for psychological reasons. Look at this way, 1 point on the ES is $50 as you know. There are 4 ticks that make up that point, each worth $12.50. When I used to trade the ES, I knew that I needed 8 ticks to make my living each day. That's all you really need to be able to do each day. Trading 5 contracts you can pay your bills, trading 10 contracts, you are comfortable. Notice that I said contracts, I see a lot of pretend traders on the internet calling them cars. I have never known any full time futures trader who called a contract-----a car. It makes me laugh when I read this stuff. I have been a member here for a while, but I admit that I mostly come here for the comedy.

 

Here is something to consider. I have been trading full time since 1996. I know many people in the industry, many floor traders, etc. I have never met a single person who trades options for a living who is not on the floor, not a single one. I doubt there is a single person who trades options for a living on the retail end that can prove it.

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My experience has been that trading a single stock works best for me... several reasons:

 

1. The ATR, volatility, and liquidity mates up well with my trading system... once I have found that proper fit I'm going to trade it well consistently. Why trade anything else?

 

2. Trading the same stock day-in-day-out helps to develop a sense of "feel" for the way it trades. I notice that when I choose to trade something else that I will struggle for a few days until I pickup that "feel" again.

 

3. I may trade the same stock for weeks or even months. This cuts down on the amount of maintenance involved with trading from a basket... it's easier.

 

Trading from a basket can put you into the hot mover for the day or week... I had some success with trading this way, but my earnings were streaky. I'm far more consistent and my trading is more relaxed... like carrying on a conversation with someone I know and like.

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I just trade the futures but I've been interested in trading a basket of stocks. For example, sorta like you're saying.. I can predict the entire market direction -- that's strategy but then there are "tactics". So, there is strategy and tactics.

 

Tactics is how we implement the strategy.. One idea with tactics is to minimize the cost of being wrong. There are a lot of possibilities in stocks that I don't have in just trading the futures.

 

You might pick the 5 strongest stocks to go long based on fundamentals or relative strength.

 

A lot of possibilities.. I think the line of thinking you are on has promise.

 

 

Just curious what everyone's opinion is on this subject.

 

I've gotten to the point where I've grown tired of trading individual stocks at a time. I commonly found myself in a situation where'll I find 3-4 stocks thru my scan for the next trading day, have the market direction pegged, and then end up in the 1 stock that decides not to participate. In the last two days I've passed up what would've been an average of +110 ticks or so if I took positions in all of them. Instead I chose the bad apple and stopped out for losses.

 

BTW, yes I do have a methodology and setup that I trade every single time. However, just because one setup looks like a previous one I had success on, that does not guarantee success. Beyond the impact of market direction, all these stocks have different behaviors, betas, etc.

 

What's been successful for you guys?

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To the OP, I recently came across (and signed up for) what seems like a legit new way of trading a basket of similar stocks at single issue prices. Both crazy, absurdly common sense, actually a "Why didn't I thing of that?" new idea, it would seem to provide a superior way to trade a basket of 30 stocks. Commis. of .33 an issue, $9.99 per basket, I mean duh! Anyone got any counter-arguemen after examining their offering?

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My Strategy is somewhat different bt less risky (atleast for me)..

It involves trading with 2 accounts . One is a Current account (Marginless and only for going long) , the other is the Margin account for only going short..

I go long only with my marginless account and put a sell limit order on the stocks (no matter how much time it takes to trigger the sell limit since there is going to be no margin call) while i short highly inflated stocks in my margin account and give them a buy-limit order (bt in this case i do have a stop-loss as there could be a margin call )..

I trade a bundle of stocks on both sides which kinda makes it a little bit of a hedging (though not much) and works well....

 

 

 

 

 

 

 

Just curious what everyone's opinion is on this subject.

 

I've gotten to the point where I've grown tired of trading individual stocks at a time. I commonly found myself in a situation where'll I find 3-4 stocks thru my scan for the next trading day, have the market direction pegged, and then end up in the 1 stock that decides not to participate. In the last two days I've passed up what would've been an average of +110 ticks or so if I took positions in all of them. Instead I chose the bad apple and stopped out for losses.

 

BTW, yes I do have a methodology and setup that I trade every single time. However, just because one setup looks like a previous one I had success on, that does not guarantee success. Beyond the impact of market direction, all these stocks have different behaviors, betas, etc.

 

What's been successful for you guys?

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Just curious what everyone's opinion is on this subject.

 

I've gotten to the point where I've grown tired of trading individual stocks at a time. I commonly found myself in a situation where'll I find 3-4 stocks thru my scan for the next trading day, have the market direction pegged, and then end up in the 1 stock that decides not to participate. In the last two days I've passed up what would've been an average of +110 ticks or so if I took positions in all of them. Instead I chose the bad apple and stopped out for losses.

 

BTW, yes I do have a methodology and setup that I trade every single time. However, just because one setup looks like a previous one I had success on, that does not guarantee success. Beyond the impact of market direction, all these stocks have different behaviors, betas, etc.

 

What's been successful for you guys?

 

I would rather say its always better to trade a basket of securities rather than an individual stock if you are risk aversion investor / trader because the risk is diversified in basket of securities and you can easily earn above average return.

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Best way is to trade a large folio of ETFs and use the cointegrations for hedging.

 

Rare to see someone say "Cointegration" on this board. Happy to see it

 

How do you calculate Cointegration Tommaso ?

 

or do you just trade the spreads according to the ETF as the peg?

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Just curious what everyone's opinion is on this subject.

 

I've gotten to the point where I've grown tired of trading individual stocks at a time. I commonly found myself in a situation where'll I find 3-4 stocks thru my scan for the next trading day, have the market direction pegged, and then end up in the 1 stock that decides not to participate. In the last two days I've passed up what would've been an average of +110 ticks or so if I took positions in all of them. Instead I chose the bad apple and stopped out for losses.

 

BTW, yes I do have a methodology and setup that I trade every single time. However, just because one setup looks like a previous one I had success on, that does not guarantee success. Beyond the impact of market direction, all these stocks have different behaviors, betas, etc.

 

What's been successful for you guys?

 

I wouldn't trade a stock in isolation, period. All things are correlated to one another. The real money is in determining leads and lags. How would you determine leads and lags for your chosen basket... By performing a backtest.

 

Could you share with us what stocks are currently in your basket?

 

Happy to see your looking into this!

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Rare to see someone say "Cointegration" on this board. Happy to see it

 

How do you calculate Cointegration Tommaso ?

 

or do you just trade the spreads according to the ETF as the peg?

 

 

I use the SCX index

 

See here:

Metrics for Algorithmic Trading by Tom Gastaldi

 

and also here:

G-Bot Algorithmic Trading Project - Strategies

 

 

You need to invest in "essentially different" price moves. Or else you are just "overloading" the same investment (and can easily blow up without even realizing it).

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