I have been trading futures in the past however my interest is switching to stocks lately. More scalable and less screen time required, at least with my trading system. My size wont be huge from the start but i am planning to seriously increase my size once my strategy shows it is profitable in live environment. Since my strategy is based on close prices all trades will be executed via MOC orders, this also gives me the opportunity to trade large size since the close trade always has huge volume. I have calculated i could go up to at least 1% of the daily volume with a MOC order without having to much of an impact on the market, however 1% is quite a lot and will not happen very soon. My exit's are also done via MOC orders, so there are no stops or targets in place, both for the long and short trades. During the backtests i have done i did not had any too large equity swings to the downside because of this, of course i could also start unloading a position if it goes hard against my position during the day. Most trades will last anywhere from 1 day up to 6-8 weeks maximum, depending on the momentum. Entry's are based on technical analysis only, fundamentals and earnings for example will have no impact on when i will enter a position. Momentum is also what my system is based on, it is a reversal system with a fixed risk reward, my average risk reward during backtests was 1:1,65 and a 75% win rate, i only close my positions on market close if the market closed above or below my mental target/stop price. I might look into a trailing stop of some kind so that i can maximize my potential profit. Very keen on hearing some opinions from more experienced traders regarding these MOC orders and the fact that i will not be using fixed stops. What do you guy's think of such a trading system? All advice and tips will be very much appreciated since stocks are completely new for me!
If you want to avoid some slippage on MOC there is trading software that could be programmed to get you one minute before the close. When I mean "programmed", they just a time function for Exit.
1. Check with your trading venue about their MOC rules 2. For stocks IMHO it is ill-advised as your required to expose well before the close. 3. Why would you expose your order to a group of market professional and telegraph - "close me where you need" 4. MOCs were originally intended to close a basket against the benchmark so the aligned at the close - so an S & P 500 basket MOC against the futures MOC so your exit is aligned - relative price becomes irrelevant 5. On single names in stocks on non-derivative or ETF settlement days you are apt to get really rotten fills - occasionally great fills, but you've lost control. A lot of the closing is ETF rebalancing and not terribly price sensitive.
1. I will be using IB. 3. Wasn't aware of this problem, i know professionals can see Market on Close imbalance and trade it until right before the close where as my order has to be submitted 10/15 minutes before close. My impression was all orders where stacked up and executed right at the closing price. I am only trading stock with a volume of around 1M each day and up. Now i will not be trading very large size from the start but the intention is there to scale up substantially once everything is running smoothly. Any other idea's on how i can trade as much size as possible, as close as possible to the closing price without pushing the market up/down to much? I have seen IB has an algorithm to execute large orders in smaller random pieces with random time intervals, something like that maybe? My average target in a stock is around 5%-10% or more, most of the time somewhere around 10% movement, so a few cent more or less shouldn't be problem, right? If i get in higher than anticipated my intended target and stop will be further away and if i get filled cheaper than anticipated my intended target and stop will be closer. I only calculate my desired target and stop after i know my fill price, since my trade is with the direction of the movement/reversal a few cents more or less will not impact my system that much. Or am i being very naive now? An example, my system gave me a long for FB on december 26th, closing price was $134,18 and after my MOC should have been submitted price rose another 0,53%. This didn't have any impact on my system/trade signal at all, even if the price would have dropped 1% the buy would still be valid. The target in this specific trade is 12,6%. My trade is always withing the direction of the day and a large pullback in the last 15 minutes is rather unique, no?
"An example, my system gave me a long for FB on december 26th, closing price was $134,18 and after my MOC should have been submitted price rose another 0,53%. This didn't have any impact on my system/trade signal at all, even if the price would have dropped 1% the buy would still be valid. The target in this specific trade is 12,6%. My trade is always withing the direction of the day and a large pullback in the last 15 minutes is rather unique,no?" Yes, you are being naive. As you point out you lost control on the close. You are allowing a group of professionals to potentially lean on your order. It depends on what else could come into the market. You point out that your opening was based on some indicator and you close was based on chance. Your percentage could be relevant or not - why leave it to chance.
Maybe i wasn't completely clear with my example but the trade is still open, i bought on the close of december 26th, which was $134,18 and i will close the trade once we close above $151,07 (12,6% rise from entry). Price already traded above $151,07 so i could have started unloading my position there but the original strategy is to close once price closes above my intended target which in this case is $151,07.
So it does makes sense, right? In my example the entry price doesn't really matter as long as we closed above $131,5. 15 minutes before the close, when my MOC order should be submitted price was trading at $133,4, so price would have to drop 1,5% during these last 15 minutes for my entry signal to be invalid only then i would be stuck with my MOC which i am unable to cancel. However during the forward testing i have been doing since August, just over a 100 trades, this did not happen once.