Most of my experience has been with long term trades where I'll try to buy a stock at the bid or just slightly above the bid. I find that this doesn't work very well for short term trades when trying to buy a stock on a breakout. Most times the bid will keep rising and get away from me. Would I be better off giving up trying to save the spread and just placing a market order? Thank you in advance for your help, Sam
If the price is really moving in a single direction, it seems that you would have to give up picking your price and just jump on board with the market order. By the time you cancel one limit order and enter a new higher one. the market will can you in the dust. I had a similar case with trying to catch a price as it dropped while selling. By time I caught the price (over the counter stock with no market trading) I was lucky to cover my trading fees.
So much of trading is common sense. If you try to buy on the bid and sell on the offer, you are essentially playing market maker on a stock. Good luck playing that game on Listed stocks, specially ones that have more than a million shares a day traded and have a reasonable range during the day. Momemtum (mo) players (again I am talking listed) will "lift" the offer when buying, or "whack" ("hit") the bid when selling (assuming no uptick rule or have a bullet/conversion on the stock) If you think about it, this makes sense - why would you ever want to get filled when the mo of the stock is going against your trade (in your case, where you are plaing market maker) ? When playing momemtum, trade with the trend, take offers and whack bids. There are then many variations on this strategy once you get it...To give the analogy with chess, this is the "one move" combination. The Grandmasters of trading play this tactic for multiple move "combinations." nitro
I'll assume you're talking about daytrading in liquid stocks. Long answer: Hell yes. Short answer: Yes. 2002 "Breakouts"?.....Be careful!!! BSAM
Sam - Your results shouldn't be a surprise - think about it a sec. Nitro made good points. You're trying to buy into a breakout - a breakout implies a surplus of buyers and that people are buying and paying up for it at the same time you're trying to shave a few cents and buy it at the low end of the spread by merely joining the inside bid rather than taking the inside offer. If you're playing liquid stocks and if you're really catching a breakout (a separate discussion), you can still have a chance of getting filled at the bid (although low probability it's a real breakout) but that penny or two you're trying to save is meaningless compared to missing your entry altogether (again, assuming you're catching a real breakout). If you're playing illiquid stocks, chances of successfully being filled at the bid when the price begins to move up is almost zero. In fact, you might get concerned if you did get filled at the bid on what you thought was a breakout on an illiquid stock (could mean the MM driving it is playing you).
LMT 25-30 cents above market is better than market , you never know what can happen like delayed execution 1 point higher!
that's the best answer yet. Especially when talking about Naz stocks using ECN's where price improvement is almost a given if available.
Why would anyone getting into a *long* term trade worry about buying at the bid? Maybe if there was a wide spread (over 25 cents or so). Otherwise you're just playing games.
First of all, if you are thinking of buying a stock, I wouldn't want the stock if I got filled at the bid or near the bid. Second, if a stock is ripping and you wanted to buy it, (for listed stocks at the exchanges) and the quote is not spread up, the best thing to do is probably enter a buy limit above the offer. If he prints way above, you dont want that stocks at that moment anyway. you might try buying it on a temporary pullback...but, of course,...how do you know that the pullback is temporary? Ahhh...the joys of trading! Its kill or be killed. If you're talking about ECN's..thats a different story.
Not only does buying the bid often lead to no fill, but even buying the ask on a limit can backfire sometimes when it is moving quickly. I tend to save a tick here and there by buying the ask on a limit, but tend to miss a few moves that really take off. In these cases I either miss the trade (sometimes good, sometimes bad) or chase the price up with my offer or go at market. Overall I think the slippage evens out on liquid issues with entering a limit buy on the ask and entering at market because of the scenarios listed above but buy at bid is all about playing the wrong game.