Trying to figure out best order type to use on IB

[jokodude]

Still a bit new to day trading, and I've recently switched over to IB. I'm currently focused on trading early morning stocks, typically 7-9:45 am high volatility momentum (with some success), and one of the things I've noticed is I don't always get the fill I want. I'm running hotkeys currently and my primary orders are below.

Buy -> Limit -> ask + 0.05$
Sell -> Limit -> bid -0.05$

Currently low volume so only buying 200/600 shares at a click as I get better at the system.

Now, I realize that to get in quickly and out quickly, what I'm using here is probably great. I'm also not trading huge share sizes (<2.5k), so there should be minimal to no issues with slippage because I'm focusing on high volume stocks.

However, sometimes I'll run into a 50 cent spread and if I'm not watching I'll get a terrible fill at the ask/bid. I was thinking about midpoint or their adaptive algo, or even something else if people have any suggestions. However, I worry with some of these options that I won't get in fast enough and I might lose a chance at a better price. I think part of the issue is I don't understand all the intricacies of the order process. Another issue is I'm trading very volatile stocks which can have 50 cent price swings in seconds, so timing things just right isn't that easy and maybe it's just how things go with these kinds of trades. This is fairly new territory for me so any help or learning suggestions are appreciated.

 

[qlai]

Buy -> Limit -> ask + 0.05$
Sell -> Limit -> bid -0.05$

Do you find that your aggressive orders (like in above example) get delayed some times? IB is tricky. You need to decide if you want immediate fill or you are ok with missing a fill to narrow down choices. If you trade manually, I think volatile stocks like ROKU and NVDA need to be bought on a bid and sold on the ask - passive orders. Otherwise, it will be very hard to go in and out quickly and profitably.

I'm also not trading huge share sizes (<2.5k), so there should be minimal to no issues with slippage because I'm focusing on high volume stocks.

High volume doesn't always mean less slippage. Look at the level2 and see how fast the levels change. Understand that what you are seeing is delayed compared to what the machines are seeing, so by the time you see it, send order, order gets to market, the liquidity may no longer be there even though your screen may still show it.

 

[traider]

best way if this is your main income is to learn how to write execution algos yourself using the API

 

[jokodude]

Hi, thanks for the replies.

As far as aggressive orders, I find there can be a short delay, ~1s or less normally, but that can happen on normal orders as well. I haven't had too many issues with delays on the fast moving stocks. I would prefer to miss a fill if I don't get my price in some cases, and in others I would prefer to get the fill. For instance, if I'm trying to scalp off the 30-50 cents that the stock is fluctuating, I only want to buy at the low and sell at the high limits. I don't want to accidentally take a high order and get stuck just hoping to break even. On the other hand, if a stock is running up/down I just want to get in.

So, what this might mean is having two different order types depending on what I'm doing. I'm not sure. What have you found to work well in your experience?

@traider - I was hoping to get to that point sooner rather than later. Stocks aren't currently my primary income, but I'd like them to be and I think the potential for them to be is definitely there. I have seriously considered quitting my job just to focus on this (and my wife makes enough that I could), but I definitely worry that I'll fail. Over the past three weeks of working with the IB interface and really focusing on momentum trading I'm up something like 7k and my strategy has almost always been effective as long as I stick to it.

Do you know a good place to start for getting into algo trading? I've never done it but I definitely want to, and I have quite a bit of programming experience so writing the algorithms themselves should be fairly trivial - it's more about understanding how to interface the algo with IB and setting up logic that will be effective. I have a ton of questions about algo trading and it's definitely something I want to start doing - however, I've been transitioning to IB and daytrading in general over the past couple months and the process has been slower than I like (mostly due to the day job).

 

[qlai]

What have you found to work well in your experience?

I've had bad experience with aggressive limit orders ( buy offer+0.05) with IB, so I either use market orders if I want to be aggressive (spread must be acceptable) or just join the bid/ask or layer bids/offers. Nothing fancy needed at my size yet

 

[tommcginnis]

First, throw out everything you think you know about what is going on. Erase the board and start over.

Second:
• bring up a BookTrader and watch it for the next 6 months, on all that you trade. Trading without BookTrader (depth of market) is suicide.

• set your trade defaults to BUY = bid+1tick and SELL = ask-1tick

and then put your brain on RECORD.

 

[jokodude]

I've heard that level 2 data can often be manipulated. Is this something where you learn to intuitively understand when the data is being manipulated and and when it's not? I've also heard that orders can be hidden - Between those two things, it feels like level two can often be greatly misleading. How do you go about using level 2? I've stayed away from using it so far, though I have considered picking it up.

So you recommend to buy at the bid and sell at the ask? Do you run into issues with getting your order filled?

 

[Canoe007]

I've heard that level 2 data can often be manipulated. Is this something where you learn to intuitively understand when the data is being manipulated and and when it's not? I've also heard that orders can be hidden - Between those two things, it feels like level two can often be greatly misleading. ...

I believe the point is that you need to watch the depth for some time to get a feel for the behaviour of each individual security you're considering trading. Lets you see the spread, depth and what kind of moves/games they're playing with the book and how they present. Even if you lack the knowledge or experience to pick out much of what is going on, you still develop a "feel" for the action. Open a file and take notes of what you see and your thoughts on it. Review what you wrote from time to time.

From your analysis of that behaviour, you can determine (best guess?) what order types, limits and/or discretionary may work, and at what size. If your backtesting with your settings looks good, then you forward test. In turn, if still good, you live trade at one lot. If still good, slowly live trade up to the order size or position scaling you want.

Even if you don't use the depth as apart of your trading rules, keeping an eye on the depth can alert you to when the security's trading behaviour has changed (that "feel"), and perhaps your trading rules won't apply. Under those changed conditions, your trading rules might trade near the same, good, very good, bad or very bad. Might be a good time to switch from live trading back into forward testing until the book behaves in a manner that your trading rules were developed for and tested & validated against.

Those forward testing results may lead to additional or changed trading rules. Or you just skip trading during that market behaviour until you can test & validate your rules against that behaviour, or develop new trading rules for that type of behaviour. I assume you're capturing that live data for backtesting...

I've been trading and suddenly the behaviour I'm seeing makes me go wtf. Stop trading and watch. A few times that stopped me from losing part of the farm. And a few times I didn't, it cost me part of the farm...

A few times I've cut back to a single lot and no shorting, thinking I should be safe with that. Sometimes I was. Sometimes I wasn't. More often I wasn't (surprise - not; my rules weren't developed for nor tested against, let alone validated against, that market behaviour), so I finally stopped doing that. For as smart as I think I am, I'm a surprisingly slow learner. And if you're trading by hand, it throws your thinking/balance/emotions/etc. off and good luck following your rules.

 

[murray t turtle]

Still a bit new to day trading, and I've recently switched over to IB......
However, sometimes I'll run into a 50 cent spread and if I'm not watching I'll get a terrible fill at the ask/bid. Another issue is I'm trading very volatile stocks which can have 50 cent price swings in seconds, so timing things just right isn't that easy and maybe it's just how things go with these kinds of trades. This is fairly new territory for me so any help or learning suggestions are appreciated.

%%
I like stocks/ETFs like that,jkdude;
but i swing trade/position trade.
100% for sure ,find something besides[.50 bid/ask] especially since that is your short term price target = $00.50, Back to my upTrending monthly charts.......................................................................................