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Kirsten Bischoff, Opalesque New York: Floor traders who worked on the New York Stock Exchange before the advent of computerized systems had many opportunities to witness to the trade-induced, emotional rollercoaster rides of their brethren and are, for that reason perhaps, acutely aware of the effect “the human factor” can have on trade decisions. So it is not surprising that after a group of former NYSE floor traders launched a long/short hedge fund they simultaneously developed a program which aims to take the emotions out of what some may say is the toughest part of trading to get right – the exit strategy.
A quant approach to risk management
The Rabbit Algorithm is not a trade strategy, but rather a trading program which takes over the risk management of one portion of a manager’s trade strategy – the exit. “The Rabbit is an exit program for whether you are long or short, no matter what you are trading, or what your investment philosophy it maintains your original strategy to exit a trade,” Chris Dearborn, Founding Partner at EW Trading and Portfolio Manager of the ExSpecialist Fund told Opalesque.
The Rabbit program, which was designed by EW Trading Principle Roland Cozzolino allows positions to fluctuate up and down and then carries out the exit of a trade after calculating four different values: Ceiling price target, floor price target, soft ceiling price target and soft floor price target.
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