Daytraders: Limit Order Vs. Market Order

This is an interesting and important thread. I am currently in the process of switching from forex to futures trading, and trying to figure out what is the best order type to be used. I am a short term trader (anywhere from few minutes to 1/2 hour, rarely 1 hour), and I trade certain patterns. I definitely want to get into a trade as soon as the pattern develops, and therefore use market orders because do not want to miss the move. I trade small number of contracts during the most active market hours.

I would appreciate if someone can give me an insight of what would be the best order type to be used for my style of trading.

Thanks,
redduke
 
in futures scalps i use limit orders for entries about 90% of the time

most of my setups involve letting the market come to me, so this works fine, gives better entries and better risk/reward

this is also true for the vast amount of swingtrade stock entries i make and the vast majority of intraday stock trades (maybe 75%+ on the latter)

i have found with futures, even short term scalps, it is almost always better to buy the bid and sell the ask.

i don't trade a mechanical system, also.
 
People seem to have been asked for and be offering generic answers ... but there really aren't any.

Study the thing you trade. Study what happens tick by tick around entry and exit times. Look at what happens after your trigger point occurs. You might find that there is a situation a and a sit b.

In situation a) it retraces X points Y% of the time. This improves your win/loss so much that you decide to only get in if you get the retracement first so your entry is a limit X-1 points below the trigger point. And you accept that u will miss Z% of the triggered trade but have a much nicer profit factor because of it.

Sit b) might call for a stoplimit order that allows X points slippage.

For me, a market order is never valid because I always want my risk defined and I always can find another entry a little way down the road.

I hope this helps your thinking.
 
generally speaking, a limit order means u are letting the market "come to mohammed" to paraphrase vs. "chasing"

specifically, with index futures, most of the time these things are not trending (except horizontally ) any significant period of time.

it is, in general, imo, putting yourself behind the 8-ball by using market orders with index futures (and to a lesser extent with stocks), because you are chasing the market.

sure, if you are using a breakout strategy, you may find it "necessary" or at least optimal to use market orders, but i find that the vast majority of entries in futures (and to a lesser extent stocks) are made more intelligently using a limit order.

does this mean that sometimes your order is not filled?

of course. that's trading.
 
Thanks a lot guys. This actually clarifies few things for me and gives me food for thought. I am going live in early April (one contract only obviously) to test things for real. Demo is useful, but live trading is ultimate test.

Regards,
redduke
 
ja, I don't understand it; never had a problem with my lmt orders gettin' filled on either stocks and futs (although don't trade the latter that often). either when I am scalpin' or goin' for longer time horizons, always get filled...I use booktrader and the execution speed is nothin' short of phenomenal: today I even had price improvement on both my entry and my exit for nyse stock~ala.
 
it obviously depends on WHERE you set the limit order

if the YM is trading 11350 and you set a limit order at 11300 you may not get filled :)

fwiw, I had a limit order fill for a position trade (not an intraday scalp) on YM, that took 3 days to fill

at 11305. got filled yesterday.

obviously, the farther you set the limit order from the current price, ceteris paribus, the less likelihood it gets filled.
 
don't know 'bout futs as I said earlier I trade them very rarely but on stocks I always get filled with lmt at mkt and many times inside the spread.
 
yes, but you are defining "limit order" as buying on the bid (or inside)

a limit order can (and often is in my case) WELL beyond either the bid (for a buy), or the ask (for a sell)

iow, a limit order is (as you seem to be limiting yer discussion to)

buying @ 103.51 when the bid is 103.51 and the ask is 103.54. or buying at 103.52 (which would be inside)

what i am talking about is when (for example) the YM is @ 11350 last trade, and the bid/ask is 11349 and 11350

i might have a limit order @ 11344. (or in the case of my position trade 11305

i do a lot of my trading based on Market Profile analysis, and it helps to remember that there are long term time frame participant (buyers and sellers) and short term. the former often have bids/offers WELL outside the current price or even daily range, and are almost all market orders obviously.

when you see the market start to tank for every sale, there is a buy (obviously). the market reverses (quite often) @ key price levels. these are where, among other things, longer time frame participants think the market has value, and have thus set limit orders at these levels. when you understand that the wrestling match pushing price up and down is not MERELY bulls vs. bears or buyers vs. sellers, but is also a wrestling match between longer time frame and shorter time frame participants (with the floor traders being some of the shortest), this helps you better understand the market dynamics imo

regardless, a limit order does not just mean buying @ the bid, or inside the bid/ask. it can mean (and is what i am referring to generally) of setting a bid WAY outside the spread, and waiting for price to come to that key level.
 
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