Daytraders: Limit Order Vs. Market Order

Discussion in 'Strategy Building' started by doublea, Jan 13, 2006.

  1. doublea


    This thread is designed so that we can discuss our entry via limit order or market order.

    I used to use market orders for all my entries and exits but my risk per trade was a big number and I held the positions overnight. Now I have developed a daytrading system to trade the ES and I have been screwed by using market orders.

    I would like to get a discussion going on in this subject. Please share your preferances and and experiences and please let us know what you're trading. It might be different for stocks vs. futures.

    I will share my preferences and experiences if other people are interested.
  2. As a mecha trader, the only entry and stop loss method that makes any sense for me is the stop order. I use market orders only to exit from a winning trade.

    I tried limit orders for entry and found limit means "limit your chances of participating in the best moves". Never again will I use limit orders to enter positions.

    With market orders I've had a max of 4 full ES points slippage (after Fed announcement). Usually I just lose the spread and I use that for backtesting my trades. Haven't had any other horror stories with market orders. Only really bad thing about market orders with hand entry from a mecha system is you have to know the trade is coming up so that you can execute it in a timely manner.

  3. I trade the ER2's with a mechanical system's signal, but entry the trades manually. I trade 10 lots at a time, when I get a signal I put 5 in at the bid and 5 in at the offer (doesn't matter if it's a buy or sell). 5 get filled, I give it 30 seconds to a minute and then switch the other 5 to a market order. I've been doing it this way for about 3 months and haven't had the market take off on me yet. The volatility of the ER2 probably contributes to this.
  4. doublea


    Thanks for your input. Here is my story:

    Today I got a Sell signal around 1.30 EST. I put a Sell order at 1292.00 (with a stop at 1293.5) when the bid was 1291.75 and offer was 1292 but I did not get the price. The market went down about a point and I put an offer at 1291, still I did not get filled, by this time the market was at 1290.75-1291. I ended up selling at 1289.5(which is the price where I would have taken partial profits) and was stopped out at 1292.

    Few days ago I was deciding between putting a limit order at 1274.5 or buying at the market at 1277.5 (3pt. difference). I bought at the market at 1277.5 but the market went down to 1274. It eventually closed above the price that I had paid but that 3 extra pts. would have been nice.

    I know I can't win it all but will certainly like to maximize the chances.
  5. StreamlineTrade

    StreamlineTrade Guest

    Similar story to others:

    I trade ES mainly, starting with Stop orders. I then noticed how much ES rotates, so figured I could use a Limit and make another tick on each trade on the wins, saving a tick on the losses.

    I missed too many trades so went back to stops. They money I missed on those trades would have exceeded the gains and savings afforded with limits over time.

    I always use limits on my profitable exits though
  6. inCom


    I trade equities and only use market or stop orders. I don't use limit orders anymore, I've found they do more harm than good to my systems. If I really have to wait for the price to go below a certain limit, I prefer to let the system track the price down then enter market when it comes up again.

  7. You were chasing the market. Almost always a losing proposition in day trading. If ya miss your entry, just sit tight and wait awhile, another opportunity will come.

    The vast majority of my trading losses were from chasing markets when I first started out. Now they are usually from being too early!

    I trade several different markets so that there is always something interesting to watch, and missing a single trade means nada to me. In case you are wondering, my day trading is ES, ER2, and NQ futures; and for forex EUR/$, and $/JPY. Range, spread, and liquidity make these all good for short time frames.

  8. doublea


    From the replies here, I think that market order is the way to go.

    My problem is a little bit different than most other day-traders. I have a full-time job and I cannot watch the market all day. I trade during my lunch break. The system that I have developed looks at the market's action from the open till 1 EST and gives a signal. I close my positions at close or when I'm stopped out. I have noticed that with market orders my risk is greater than with limit-orders. I guess it comes down to a person's risk tolerance.
  9. doublea


    I went back and looked at my previous trades and did some testing.

    I am still going to be using limit-orders as I want to keep my risk per trade low. This will mean that I won't make money on certain days for not being in the market but I'm willing to take that risk.

    In the next couple of weeks if I consistently do not get filled at the limit-price, then I might just go back to market orders.
  10. the stop would be the best entry if it could work into your system but my system only have 20% of their entries on stop. so the rest of the time i use limit
    most of the time. sometimes i have to just sit and wait.
    the times i use market is when i just absolutely have a gut feeling its going one direction and going fast. but i don't do that very much.
    #10     Jan 16, 2006