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Using Orders to Your Advantage

Using Orders to Your Advantage

Now that you've read about the different kinds of orders, here are some suggestions regarding their use. The purpose of learning how to use price orders to your advantage is obvious. Profitable day trading depends on making every penny and every point count. You must be consistent and frugal in everything you do. Here is a list of dos and don'ts with respect to orders:

Try to avoid using market orders unless absolutely necessary. Market orders cost you ticks. If you lose a few ticks getting in and a few ticks getting out, then you have lost good money, often unnecessarily. There are many good alternatives to market orders. Some of them have been discussed above, some will be discussed below.

Don't use MOC orders. They will cost you ticks. Ticks add up. A few ticks here, a few ticks there, pretty soon it adds up to real money. If you must use such an order then you are probably better off selling at the market several minutes before the close than in giving your broker an MOC order. As far as I'm concerned an MOC is, most often, a license to steal.

Use stop limit orders instead of stop orders. In most cases you will be filled. If you are concerned about being filled, put a one- or two-tick limit on your order.

Fill-or-kill orders can be used to your advantage in several ways. If you need to exit or enter a trade and you don't want to wait to find out if you've been filled then use an FOK order. You'll get quick feedback, and you'll probably save money. If you've never used such orders before, then get your feet wet.

ВцUse FOK orders to test a market. One good way to see how strong or weak a market may be is to use an FOK order. Here's what I mean. Let's say that June S&P futures are trading between 406.50 and 406.90. You had a buy signal at 406.50. Trading volume is light. Following the buy signal, prices moved quickly to 406.90, and you didn't want to chase the market. You are concerned that the signal might not work this time, because the market fell back quickly to the original breakout price of 406.50. You are hesitant to buy, therefore. What to do? Test the market by placing an FOK order to go long at 406.45 or 406.40, knowВэing that this is below the recent range of trades. Your order goes in and you watch the tape. It reads 406.55 when you enter your order. The ticks then go as follows: 406.55...406.50...406.55...406.50... 406.50...406.45B (your bid)...406.45. You are filled at your bid price. What does this mean about the character of the market? Most likely this indicates a market that is weak. You were filled at a low bid, and this means that there are willing sellers. This characterizes a weak market.

However, consider the same scenario with a different outcome. You enter your bid at 406.45 FOK. The tape reads 406.55 when you enter your order. The ticks then go as follows: 406.55...406.50...406.55... 406.50...406.50...406.55B...406.55...406.60...406.65...406.60...406.55... 406.60...406.65...406.70...406.75 and so on. The market never even comes close to your bid, and the order is returned killed. What does this mean? It indicates a market with good demand. It suggests that you had better get on board quickly. You may even want to use a marВэket order to do so.