Do market orders always take preference and fill before limit orders even if the curent bid/ask is well 'within' the limit? For example: I used a limit order at the open the other day to buy 100 XYZ @ LMT 5.50, it opened at 5.42 (it was a large gap down) and shot down to about 5.15 within a minute or so in a flurry of selling, i got filled at 5.18 as the market began to slow down. Could this have been because of all the MKT orders to sell taking preference? I submitted the trade at about 9:20, would that have had an impact? This slippage on entry turned out to be very favourable, I sold the next day for roughly breakeven rather than the loss i would have suffered if it had have been filled at 5.42... Any comment appreciated.
I disagee that a limit order is always associated with a counter-trend, that may be the case if you are placing a limit order outside of the current market (e.g. buying at the current bid or less) Example: NQ is trading 1627/1627.50 bid/ask, if I place a buy limit order at 1627.50 it is no different than a market order except I am not willing to accept any slippage. Someone else said they place an order a tick above the current market, say buy limit at 1628 - that should be filled at 1627.50 but worst case 1628, in any case they have just insured that the slippage is no worse than one tick but they arent waiting for a counter-trend move to get in. I agree with your point that if you are trend following and place a buy order at 1627 (the bid) you are basically looking for a micro retracement against the trend you are trying to follow. So you might argue that trying to enter trends like this will end up giving you a higher percentage of losing trades (trend turns against you) while you end up missing out on a majority of the good trends because the price never dips enough to get your order filled. Such is the fun of market.
you're gonna get hacked either way. depends on whether you want to actually get shaken out and lose money, or just sit and watch the market run away from you.
This is one of those weird little questions that gets to the heart of many trading issues. My take on this is : limit orders supply liquidity, market orders demand liquidity. Whether one order is better than the other can only be settled by trying to figure out how much more/less you would make if you switched order types - only the opportunity cost of switching can give you an objective answer. The trouble is I don't believe the opportunity cost relationship between limit and market order is stable either ... and is a function of what kind of market you are in.