When growing your money tree with a trading system there isa plethora of pesky little details that happen on “under the dirt,” inside the root ball. Most of the time you have to furor your brow over it because the strategy, the code, should handle it all.
However, there are times when you scratch your head and wonder “why in tarnation did that happen?”
Today we are going to talk about some of those head scratchers.
1. What is a Trade-Through?
QiT uses a limit order to enter all positions. We identify a candidate, according to the rules of the algorithm, then we make the market come to us by setting a limit order to enter below the close of the day (above the close for shorts).
At least 70% of the time, our limit orders don’t get filled because the market didn’t do what we asked it to do so we just walk away from it and go on the next trade.
However, there are times when our limit order is the daily low (daily highs for shorts) and we end up buying at daily lows. There isn’t a trader out there who wouldn’t identify this as a very good trade. Unfortunately, not everyone will get filled at those daily lows. Some QiT members will be, some will get partial fills and some will not be filled at all.
As a service what do we do? We originally thought we wanted to be as fair as we could to all members so we implemented a rule that required everyone who got a fill at daily lows to exit the position the next morning bringing all members back in sync. This seemed to be the fairest way to handle it.
Well, we’ve come to realize this is not the fairest way to handle it. These trades are typically very profitable and requiring the members who were filled at daily lows to exit the next morning, “punished” them because they were potentially leaving money on the table.
So we will consider all fills at daily lows as a valid trade. If you are filled the algorithm will manage it until its closed. However, if you are not filled, just watch it. I know it will be frustrating to “watch it” but recognize when you are filled, and others are not, they will be “watching” you make money. Believe it or not, it all works out even.
2. What is an nBar?
The nBar is the circuit breaker we use on a trade. It is the number of days a trade will be allowed to stay open before we exit. Each portfolio will have a different nBar stop based on the optimizations.
3. What is a Slot?
If there are more trades than the algorithms will allow, QiT uses a technology called “Slots” where each position in the portfolio is allocated a slot. All trades that fit the rules are sorted on their
respective HV(100) and the trades with the higher HV will be put into a slot. This means we trade the more volatile stocks for research as shown us those to be the better candidates for trading.
3. What happens when all Slots are filled?
If the algorithm’s rules are 10 positions maximum it will try to fill all those “slots.” Let’s say 6 of those slots are already filled so it will try to open 4 more – this is very straightforward. But what about the slots that are filled today but have been signaled to exit tomorrow? If the exit is a market at open, the slot will become available right away but a limit exit becomes a little trickier. There could be more than 10 open positions for part of the day, or until the limit exit is reached. This is not a problem with a margin account but it is with a Cash account. The algorithm will recognize a cash account and not allow more than the maximum number of slots to be filled.
4. What is an Open Cross
The Opening Cross is a process that generates a single opening price reflective of the true supply and demand of a particular stock as the market opens each day. The Opening Cross improves upon the current market open and resolves natural stock buy and sell imbalances at the open.
From 9:28 a.m. to 9:30 a.m. (the two minutes prior to the Open), the exchanges gather and publish information about buy or sell interest in a particular stock, including an indicative opening price.
5. What is Unsettled Cash?
Under Regulation T of the Securities and Exchange Act of 1934 all transactions in a cash account must be paid for in full. This means, if you BUY a security with settled funds in your cash (retirement type) account you may SELL that security at any time without restriction. If you BUY a security in your cash account with insufficient funds or unsettled funds you must hold that security until the purchase is fully paid for with either a new deposit or the settlement date is reached for the funds used.
Equity trades settle 3 business days following the trade date (T+3). Option trades settle 1 business day following the trade date (T+1). The cash released from a SELL, in a cash account, are considered “unsettled” for a period of 3 business days following the trade date. However, a trader may re-use the unsettled sale cash to purchase another security prior to the settlement date of
those funds but, in doing so, he/she agrees to hold the new purchase at least until the funds from the original sale settle.
If you sell the security that was purchased all or in part with unsettled funds prior to those funds settling it will be considered a violation of SEC rules and your account will be restricted for a period of 90 days. During that time you must place your trades over the phone with a live broker.
The original theory for this rule is that a customer who sells securities prior to paying for them in a cash account (either with a new deposit or settled funds from a prior sale) has received an extension of credit. Credit transactions must be executed in a Margin account.
We’re the Plan in “Plan your Trade and Trade your Plan” – TraderJanie
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