Black-Box Trading is also known as algorithmic trading, automated trading, quant trading, or robot trading. It involves the use of computer software to place orders based on mathematical algorithms. These algorithms typically use historical price data to look for correlations that are strong enough to justify trades. Multiple trades are made and high degrees of leverage are usually employed to take advantage of almost microscopic price discrepancies. Black-box trading is most used by hedge funds, but also used by mutual funds and pensions. The trades are typically executed in 1/100’s of a second, far fast than any human trader could execute them. Sometimes positions are held for only minutes.
Showing posts with label Active Trading Dictionary. Show all posts
Showing posts with label Active Trading Dictionary. Show all posts
Thursday, November 13, 2008
Tuesday, November 11, 2008
Active Investing
Active investing involves short investment horizons and is tipified by daily or even more frequent trading. Day traders are considered active investors, though some traders who turn their portfolio holdings over more than 1x a year may be considered active investors as well.
Absolute Breadth Index (ABI)
Absolute Breadth Index is a volatility indicator that ignores market direction. The ABI is calculated by taking the Absolute value of the difference between declining stocks and advancing stocks. Large numbers usually indicate rising volatility.
The ABI is classified as a breadth indicator because the advancing/declining values are the values used to create it. This index can be calculated using any exchange but typically the New York Stock Exchange has been the accepted standard.
The ABI is classified as a breadth indicator because the advancing/declining values are the values used to create it. This index can be calculated using any exchange but typically the New York Stock Exchange has been the accepted standard.
Above the Market Terms
Above the market trading involves using stop and limit orders to place an order above the current market price. For example, limit orders to sell and stop orders to buy.
This is a strategy that is often used by momentum traders. For example, a stop order would be placed above the resistance level to buy. Should the security's price break through the resistance level, the investor may be able to participate in the upward trend.
This is a strategy that is often used by momentum traders. For example, a stop order would be placed above the resistance level to buy. Should the security's price break through the resistance level, the investor may be able to participate in the upward trend.
130-30 Strategy
A trading strategy that involves shorting stocks equivalent to 30% of a portfolio and using those funds to go long 130% of a portfolio with stocks that are expected to perform better.
To engage in a 130-30 strategy, an investment manager could rank the stocks used in the S&P 500 from best to worse on expected return, as signaled by past performance. From the best ranking stocks, the manager would invest 100% of the portfolio's value and short sell the bottom ranking stocks, up to 30% of the portfolio's value. The cash earned from the short sales would be reinvested into top-ranking stocks, allowing for greater diversification in the higher ranks.
To engage in a 130-30 strategy, an investment manager could rank the stocks used in the S&P 500 from best to worse on expected return, as signaled by past performance. From the best ranking stocks, the manager would invest 100% of the portfolio's value and short sell the bottom ranking stocks, up to 30% of the portfolio's value. The cash earned from the short sales would be reinvested into top-ranking stocks, allowing for greater diversification in the higher ranks.
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