Stop with Limit Orders

[mcdirt]

Matt,

I see that you entered June Heating Oil with a large amount of slippage ...

1.6700 - 1.6526 = 174 x $4.20 x 3 = $2192 in slippage?
Do you not place your orders as stop with limit?

That's what I did and I did not get filled due too poor liquidity, which is OK - I'd rather not be able to get in than not be able to get out. I would have thought that for "risk management" it would be prudent to limit your entry price to maintain the R:R ratio when markets are not liquid enough to get your fill at or near the right price. Perhaps the liquidity of that contract will improve after the silly season but you also have the real risk of slippage on the exit as well as the entry?

rgds McDirt

[Matt Bowen]

Hi McDirt,

I see that you entered June Heating Oil with a large amount of slippage ...

1.6700 - 1.6526 = 174 x $4.20 x 3 = $2192 in slippage?

No, if I could find a way to factor in slippage to our trades, now that would be something...wouldn't it :)

Slippage is the necessary evil of trading... In Day trading it's not as prevalent because the trader is in and out..plus you don't have the overnight factor to deal with, the downside is you have limited profitability because of time.

In position trading like what we are doing here we are letting the trade grow and time is not much of a factor as we have a good 6 months on this contract. There were two a big plus factors to this trade an that is:


1.) The initial risk on this trade was on $620. which in Heating Oil is rare.
2.) Once the trade was active we were able to move the stop to breakeven after the first day because of the huge run-up. This in my opinion is a huge factor because it allows me be risk free in the trade This is my first objective in EVERY trade... GET TO RISK FREE AS SOON AS POSSIBLE.

Do you not place your orders as stop with limit?

No, I learned a long time ago that if a market does not fill a gap in two or threee days it's a VERY STRONG signal to take a position in the direction of the gap...better know as the upside or downside gap. So what's this got to do with slippage...well think about it... if you have a limit order you will almost always NOT get filled (especially in New York markets)and you will probably leave a lot of money on the table. It's kind of like the guy who was bitching about paying $20.00 more for Google than he wanted to to at $220. per share Now that it's trading at $420. per share I wounder if he still thinks that $20. is too much :D

Sure my risk is more than the initial risk I calculated, but if I want into the trade I have to buy a ticket and as we all know ticket prices change. It's just like the Google guy who is kicking himself for $20.00 bucks. The price of limit orders can be VERY expensive...just ask the Google guy, ha ha!!! To answer your question do I use limit orders? no way, I've missed too many good trades using limit orders. There is nothing worse than watching the train pull away and you're not on it.

Also, if the initial risk is too much for you then manually adjust the risk to fit your tolerance level.
In other words, don't use the Stop trigger as your stop. If the Trade Gaps up to the 100% initial risk level then make your stop the entry level... it's the same distance AND you are using the same risk... see being "Street smart" and using a little common sense has it's advantages. I'll bet most people didn't consider this option...did they?

[prh]

June Heating oil is very illiquid at this time of the year.
For example, on Dec 29, 2005 there were 18 price changes (18 trades) the entire day. The difference between price changes was as much as 1.5 cents.
I would not put a stop in that market and stay with the front month(s).

Happy New Year to all!

Philippe

[mcdirt]

Thanks Matt, it does look to be turning into a very nice trade but I'm not ready to start taking entries at any price until I am far more experienced, especially when I can't watch the market.

You could have had your stop at b/e before the close on the day of entry.

Living in West Australia, NY opens at 10:30pm my time and Chicago at 11:30pm my time. I cannot stay up all night waiting to get into trades so I'm leaving Stop Entry with Limit orders with my broker. I'll miss some entries but it fits my lifestyle and removes any stress about bad fills etc.

It also means I can't day trade the E-minis, which is a pain in the a$$.

rgds McDirt