Using Limit Orders

[Kim 7,943]

I'm often asked: if the price changed after the trade alert, what should I do? Should I enter at higher price or be patient and use limit orders?

I decided to do a little exercise and check our latest trades. Out of 10 current open trades (some are half allocation), ALL of them could be entered at prices lower than the official alert price. Same is true for previous 10 closed trades. NO EXCEPTIONS. Sometimes it took few hours, sometimes you needed to wait for the next day. But eventually a limit order at price equal or lower than the official price would get filled.

I think you get the answer. ALWAYS use limit orders. Never chase the price. If in some rare cases the stock moves and you are not filled, so be it. Better to miss a trade than overpay.

Also debunks a myth that our performance cannot be replicated. Patience always pays off. And if not always, then 90% of the time..

On a related note, it is usually also possible to enter the trade before the official alert comes out, based on the information in the discussion topic. 

[Noah Katz 90]

1 hour ago, Kim said:

Out of 10 current open trades (some are half allocation), ALL of them could be entered at prices lower than the official alert price. Same is true for previous 10 closed trades. 

 

How do you know that orders would have actually been filled at whatever paper prices you used for reference?

 

I've many times (though not recently)  had orders sit for days and never get filled.

[Kim 7,943]

Because I see members sharing their fills on the forum. I also try many times to fill few extra contracts after the alert just to check and 90% of the time I'm filled.

 

Also on trades posted by @Yowster I'm in the same shoes as other members. Sometimes I'm filled before the alert based on discussion topic. Sometimes after. And yes in some cases you might have to wait a day or two.

 

Just look at current FB trade as a good example. Some members chased it as high as 1.17, and the next day it was available below 1.10.

[vasis 2]

Hi Kim,

What do you think about snap to mid orders available by IB? Do you use them? 

[Noah Katz 90]

25 minutes ago, Kim said:

Because I see members sharing their fills 9n the forum.

Fair enough, thanks

[Kim 7,943]

13 minutes ago, vasis said:

Hi Kim,

What do you think about snap to mid orders available by IB? Do you use them? 

I don't, but you can definitely try. Looks like an interesting option.

[Manish71 28]

Hi Kim,

 

There are lot of discussions about not over paying for a trade, setting limit orders etc. But I have had this question for a long time ?

 

* How does it matter even if you chase a price for a trade and pay 2% to 5% more ? For example instead of $1.00 lets say you chase and get filled at $1.05. Now if the trade works in your favour you will still make a profit although a tad bit less. And if the trade goes against you, you will make a tad bit higher loss. It is the 5% more profit or loss, thats it. And you never know even if you had not chased and had been patient and gotten filled at $1.00, are you able to exit at the ideal price ?

 

There are so many variables  in the overall profit/loss for so many trades you will take that, don't you think identifying the trade setup is more important ?. Once you are convinced, you can actually chase the price to get filled atleast till 5% to 7% higher ? It should not make a difference in the long run. Getting more winning trades with good R:R is more important and not the filled price which might be 5% or 7% higher even if you chase.

 

Because if you strictly follow the rule of not chasing at all, you will actually miss out on good trades which will actually make more of a difference in your overall P/L and not the 5% to 7% higher price you will have paid for the trades by chasing ?

 

Can you please explain ?

 

Thanks.

Edited December 16, 2018 by Manish71

[Kim 7,943]

We are trying to find the best setups at the best possible prices. Overpaying 5-7% on each trade will make a huge difference in the long term. In short term trading, it is even more important.

Yes, if we knew that all trades will work and make 20-30%, then overpaying 5-7% makes no difference. But this is not the case. There are losers as well. And some winners are pretty small. Overpaying 5-7% means small winners turn into small losers, and moderate losers turn into bigger losers. 

[Sam Chen 9]

Just want to share a bad practice of mine. I set a GTC calendar order according to LULU discussion thread (no trade alert). I re-center this GTC order everyday but I forgot to pay attention to the earning day. It got filled one day after earning and the price dropped very fast because of IV drop (that's also the reason why my order got filled). When I found out, it already had 40% loss. Fortunately it was half position.

However, if you only follow trade alert, you should be fine. You are supposed to remove your GTC order when the closing alert is sent.