Missing an Opportunity and Limit Prices

[Actuarial_Fun]

Hi. I've been thinking a lot recently about how selective I should be on trades. For example, say I feel a contract is a good buy and I don't want to miss out on the move higher, if my ideal entry was say 32 and I see it is trading at 32.1, I'll buy sometimes at market and sometimes I put the limit it @ 32 and get a better fill or miss out on the opportunity altogether if it never retraces. Ultimately, it would be ideal to find the exact % of trades I should miss altogether, if I should be less stingy on my profit limit when I have a winning trade, etc., but looking over my historical trades that is a very difficult endeavor.

I'd be interested in any books or links people have to discussion on this topic, as well as people's views in general. From a poker player perspective if you are always winning at showdown, you fold the river too often (as a simple example), but how to find that perfect mix in trading? Should I enter and lose 0.5% of my profit upfront if I can purchase it in 5 minutes cheaper or should I buy at market knowing I may not get that fill?

Obviously, this is trading strategy dependent. It will be based on frequency of trades, average trade win, average trade win when profitable, etc., and no two people will have the same "correct" formula, but I'd be very interested if people have found any literature around this to help my trading. I think it's partially a psychological question, e.g. how to be comfortable with letting good opportunities walk away for in the long term you may increase your profit, and also a more theoretical game question, as to how we should approach trades.

Thoughts?

 

[smallfil]

Hi. I've been thinking a lot recently about how selective I should be on trades. For example, say I feel a contract is a good buy and I don't want to miss out on the move higher, if my ideal entry was say 32 and I see it is trading at 32.1, I'll buy sometimes at market and sometimes I put the limit it @ 32 and get a better fill or miss out on the opportunity altogether if it never retraces. Ultimately, it would be ideal to find the exact % of trades I should miss altogether, if I should be less stingy on my profit limit when I have a winning trade, etc., but looking over my historical trades that is a very difficult endeavor.

I'd be interested in any books or links people have to discussion on this topic, as well as people's views in general. From a poker player perspective if you are always winning at showdown, you fold the river too often (as a simple example), but how to find that perfect mix in trading? Should I enter and lose 0.5% of my profit upfront if I can purchase it in 5 minutes cheaper or should I buy at market knowing I may not get that fill?

Obviously, this is trading strategy dependent. It will be based on frequency of trades, average trade win, average trade win when profitable, etc., and no two people will have the same "correct" formula, but I'd be very interested if people have found any literature around this to help my trading. I think it's partially a psychological question, e.g. how to be comfortable with letting good opportunities walk away for in the long term you may increase your profit, and also a more theoretical game question, as to how we should approach trades.

Thoughts?

Nine out of ten trades you quibble with a few cents or even $0.50 that you want to save when getting into a trade. Chances are good, you miss out on a good trade with a decent profit on top of it. If a trade is good, you have risk management taken care of, quibbling over cents will cost you more. As they say "penny wise, pound foolish." I have done the same myself a number of times. Now, I try to get in at a price I am comfortable paying for. I am not going to chase a stock that gaps up multiple points just for the heck of it. Now, that would be dumb. Better to get in at near your entry point and put your stop loss in place in case, you are wrong. If you are right and the stock moves into your favor, of course, you now need to manage your trade and protect your profits.

 

[kmiklas]

I think it depends on your exit point. Are you planning on exiting at 32.3 or 75?

- The former, perhaps a 50/50? Half the time you'll win; the other, you'll lose. Footnoting your point, empirical testing with your trading strat will tell you more.
- The latter, just get in. The extra 0.1 will be lost in the rounding.

 

[murray t turtle]

I think it depends on your exit point. Are you planning on exiting at 32.3 or 75?

- The former, perhaps a 50/50? Half the time you'll win; the other, you'll lose. Footnoting your point, empirical testing with your trading strat will tell you more.
- The latter, just get in. The extra 0.1 will be lost in the rounding.

%%
Exactly. I like a limit order on entry; but even more important= like IBD founder noted ''do not quibble over a quarte + miss the move''...……………………………………………………………………………………………………………………………….And the expression penny wise /pound foolish applies also.

 

[traider]

If you have more trade ideas than capital, be conservative in entering a trade.
Otherwise, be aggressive
This applies if u trade size n need an execution algo

 

[Laissez Faire]

This have actual been a sticking point for me in this fast moving market. Normally, I always use limits to enter (and still do when I can), but found that I often were not filled and this could in turn cause me to chase the markets and getting late sub-optimal entries.

I solved it, partially, by using stop market orders. For my market, ES, this works fine as the fills are usually good.

You could for example be working a stop order above the market to ensure a fill while at the same time work a limit below the market. This ensures you're getting filled if the market takes off.

In the end, it really depends on your strategy, style and profit potential of the trade. I would only stop myself into a trade if I think there's potential for a large move and that there's a chance I won't get a second entry.