I'm just starting to trade NQ futures intraday, basically just buying them on an uptrend and then selling them on a downtrend based upon simple indicators. I've just been buying them at the ask price and selling them at the bid price. My view is that if I place a limit order to buy instead at the bid on a uptrend, most of the time when the order would get filled would be only if the price has reversed and is going down. Vice versa on a downtrend if I place an order to sell at the ask. I started by simply placing market orders but I found that a lot of my fills were a lot higher/lower than what I would have expected. For instance I might see the bid at 1021.5 and the ask at 1022. I'd place a market order to buy expecting to get it at 1022. Instead I might get it at 1022.5 or 1023. I'm using IB and everything seems to work pretty quick. Now I've started to place limit orders and I'll place them as quick as I can, within milliseconds before the price changes. For instance if I want to buy, I'll place a limit order at the current ask price and if I want to sell I'll place a limit order at the current bid price. Is this what most experienced trend traders would also do?
There is alot of variation when the markets are about to take off. You can place a bid under the market and still have a decent chance of a fill. The bid ask spread moves around alot. It happens so quickly that you need to have your limit order already in. When this happens there may be no trades at the bid, but the spread will tick down briefly allowing you to get a fill at the offer. Thats often a very good sign and means there is no selling interest at the lower price. I've also noticed that getting an easy fill at the bid is a sign you are on the wrong side of the market. Conceptually there is a big difference between placing a bid under a rising market and buying into a declining market. The first is OK while the second is what bottom fishers do and is to be avoided. In ES, market order will often get you a fill sometimes a half a point or more away from what you could have got. Its so easy for the spread to quickly move around two or three price levels especially with the electronic contract. So by entering a market order when you see the market taking off is a really good way for you to start a trade .50 or .75 of a point in the hole. Because of this you should enter with limit orders even if all you want to do is buy at the offer.
Thanks for your detailed answer Puffy. That answers a lot of questions for me. Hope you have a Merry Christmas!
almost t, I agree with puffy, the only thing though, after a while, check to see if most of your trades go against you by one tick. If so, then you can save a lot by buying the bid. Then you have to see what buying the bid would have cost you in missed trades. But chances are, if you would have missed it by buying the bid, you may have also missed it by lifting the offer. And then there are the times you miss it, it ticks up and then stalls, now you are still sitting there at a limit. Do you want to stay and get filled? Maybe you now want to forget the whole thing. When you buy the bid, you may be buying crap, but you got it at a better price. I have hotkeys set up to buy bid, buy ask and buy mkt, and which one I use depends on how scared I am of missing the trade of the century.
but here's what really bothers me. You can miss all kinds of trades trying to buy the bid, so it would seem conversely, you should be able to stay alive with a 1 tick stop. If I try to buy the bid and sell the ask all day with no stop, sooner or later I should lose everything, right? So, then I should be able to trade with a 1 tick stop and sooner or later double my money.
I would use: buy-limit @ ask orders to go long upon a trend confirmation (i.e. breakout); buy-limit @ bid or below orders to go long in anticipation of a breakout; sell-limit @ ask or above to go short in anticipation of a breakdown; market orders to go flat ASAP.
If one is using a trend following method such as MA crosses, would it be safer to use a buy stop @ or a tick above the cross to confirm the movement is in your direction? Not giving advice here, just asking. I've used the limit to always buy, but I was read this idea the other day in the ET training info. I see the point of filtering noise but I also see validity in buying limit below ask at the cross. What say ye veterans? To Dis: Does that "would" imply that you do not actually use your recommended methods?
FWIW, I use a stop-limit to enter at the price I am willing to pay. If I'm trading trends, a tick isn't all that important. --Db
Well then how bout this. You want to get long really bad, but you want to buy the bid. Wait until the bid becomes the offer, then buy at the market, and you should get filled at what you thought was a good price.
MA crosses may provide a confirmation of a trend, but rarely a good entry point. That is because an order triggered by such a cross often gets filled well above (below) the cross price in the direction of the trend thus lowering the reward-to-risk ratio.