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TimRacette

The Secret to Better Fills, Less Slippage, and Fewer Stop Outs

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Most traders experience a significant amount of slippage on their positions. Most traders also fail. There are two things you must know to get better fills, less slippage and fewer stop outs.

 

The first thing which leads to better fills is knowing when to use the different order types. When entering a position you have the ability to place a market order or a limit order. Which is best.

market-orders.png

Market Orders

These orders are great for exits, but dangerous for entries. This is because a market order is an order to buy or sell at the market, whatever that current price may be. We all know that the markets move incredibly fast so when you place a market order or click the join bid/ask you are essentially throwing your hands up in the air saying “I don’t care where I get filled.”

 

Is there a better option?

 

Limit Orders

Yes. The way to get better fills is to use an order time foreign to most traders, limit orders. This order type ensures that you will get the best fill possible because a limit order is instruction to buy or sell at the price you select OR BETTER. This means you cannot get filled for anything worse than where you place your order.

When to NOT Use Limit Orders

There is one instance that you would not want to use a limit order, when placing stops. A stop order is saying, “When price touches this level I want to close out my position at the market.” For most order execution platforms a stop order is by default a market order.

 

If you were to use a stop limit order and price were to quickly move through your stop price, you would remain stuck in the position. Think about it. That limit order is saying, “I want to get out at this price or better” so if you’re long with a stop below you and the market quickly moves through your stop limit order, the order will stay active and not fill you, very dangerous.

Tips for Breakout Traders

If you are the type of trader who likes trading breakouts, instead of waiting for price to breakout and then clicking the market button consider using buy stops and sell stops. Placing a stop just above the break out point where you would like to enter will push your order into the market at the point that the market breaks your level.

 

While this order is a market order, placing it well in advance will help reduce slippage because most platforms use a FIFO, (first in, first out) method. Meaning if you want to buy above highs and place your order sooner than the next trader, you will be filled first. If you wait for that breakout and then hit the market button you will be last in line.

 

Example Trades

 

Tips for Traders Using Retracements

This is where the power of limit orders really shines. If you’re the type of trader who likes to buy or sell when price has retraced of its highs or lows, using a limit order will ensure that you will get filled at your price or better.

 

Waiting for price to retrace can help reduce the number of stop outs you take. The reason being, you are not impulsively jumping in at highs, you are waiting for that pullback in the larger trend and as that counter trend trade loses steam, you enter in anticipation that the market will resume in the current direction.

 

The Downside of Limit Orders

One con about using limit orders is that if price does not go beyond your order you will not be filled. This however, can be looked at as a good or bad thing.

 

Limit orders ensure you get the best possible price, and I’d rather trade in this way missing a few trades, than taking stop out after stop out, by impulsively clicking the market order.

market-orders.png.0ea3a7349e392d393750af008d9d96ff.png

short-trade-example.png.5cc852f88855ceadd51f13ccad10e434.png

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I found entering with limit orders very frustrating. A lot of times you get no fill or it misses you by a tick or it fills you and it runs right through you. At this point the trades that I expect to make the most money with, I enter with stop orders. Entering with stop orders alleviates the need to call the turn.

 

To use stop entries you need to be mature as a trader since, by design, you are not getting in at the lowest (highest) tick possible for a long (short) and there are a lot of traders who will be bothered by getting in many ticks higher than they could have. The trick is to get into trades that have great potential so that the ticks that you missed in the beginning are chump change, but you do need to know how to get a good read on the direction of the market you are trading.

 

I suppose the best of both worlds is to be able to call the turn and know the direction, but I resign to the fact that I am a turn calling disabled trader. In fact, I enjoy taking money from those traders who are unable to call the turn.

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The trick is to get into trades that have great potential so that the ticks that you missed in the beginning are chump change, but you do need to know how to get a good read on the direction of the market you are trading.

 

 

Excellent post MM.

What technique do you use to spot a potentially good trade from a useless trade.

 

cheers

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Everyone, not to be churlish about the topic, but seriously if you aren't aware of different order types availble and what they do, just explore your platform and try them out on the simulator.

 

This is really really basic stuff- not a secret.

 

If you want great fills, do your homework, trade a liquid market and sit in an office right next to the exchange!

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One con about using limit orders is that if price does not go beyond your order you will not be filled. This however, can be looked at as a good or bad thing.

 

I'm not trying to be super picky, but for anyone reading this who doesn't know, this is not an accurate statement. Anyone who doesn't understand this should simply understand how queues work, and how a transaction takes place. Not saying you don't know Tim, but it is certainly not accurate as stated.

 

Also, if I may say, it's a bit ballsy to title this post "The Secret to ..." -- a better title would be "Basics of order types," i.e., stuff one should know about before ever taking a trade, just like learning which pedal is the brake and the accelerator before driving a car.

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Excellent post MM.

What technique do you use to spot a potentially good trade from a useless trade.

 

cheers

 

You never know if its a good trade or a useless trade until after you make an attempt. Very simply, I look for HH HL or LL LH.

 

A good trade turns positive fast and a useless trade turns negative fast. I cut quickly when my trade turns negative. I pound as hard as I can when I have a winner.

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Everyone, not to be churlish about the topic, but seriously if you aren't aware of different order types availble and what they do, just explore your platform and try them out on the simulator.

 

This is really really basic stuff- not a secret.

 

If you want great fills, do your homework, trade a liquid market and sit in an office right next to the exchange!

 

Order types is just about the most basic of all knowledge in trading.

 

In most fields that I have explored, any time I see "The Secrets of ..." in the title of an article or book, I acknowledge this may just be marketing strategy, in some cases it is just a title to grab the reader's attention, and that is ok if it works. That looks to be the case here with Tim. This thread is getting reads and posts, so the title was effective in its own way!

 

Of course, in some venues like martial arts and trading, it can instead be an attempt to draw in those who are desperately looking for some answers. And all of us have seen plenty of that in magazines and books.

 

I am not too sure if there are many secrets in trading or in most other fields. Usually the solution to problems, and "the Secret," is exceptional Mastery of the fundamentals, but is that ever a difficult process, and something which few of us will never achieve in any field.

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A good trade turns positive fast and a useless trade turns negative fast. I cut quickly when my trade turns negative. I pound as hard as I can when I have a winner.

 

Well said.

 

This, my friends, is the only "holy grail" there is in trading.

 

 

Luv,

Phantom

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I'd actually have to agree with you Qiman. This was the first post I put up where I used "secret" in the title and regret doing that now. All the other things I've shared have been more direct. Thought I would mix things up a bit, but I'll stick with more direct headlines from now on. I appreciate you reading the post though. Happy Thanksgiving.

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The Downside of Limit Orders

One con about using limit orders is that if price does not go beyond your order you will not be filled. This however, can be looked at as a good or bad thing.

 

Limit orders ensure you get the best possible price, and I’d rather trade in this way missing a few trades, than taking stop out after stop out, by impulsively clicking the market order.

 

In my trading the majority of my orders have always been Market and Buy/Sell Stop Orders. If there's a reason to be in, I want in.If there's a reason to be out, I want out.

I don't like to rely on someone else (limit orders) to do that for me.

 

Limit Orders guarantee you will always be in your losing trades but not the winners. Yes, you get a higher/lower price IF filled and market reverses, but is that "better" than missing some winning trades completely....maybe,maybe not

 

Its not the order type that causes Stop Out after Stop Out...Its likely the act of "impulsively clicking"...I'm pretty sure I could generate a string of Stop Outs by "impulsively clicking" Limit Orders... Click when there's a reason to.

 

Fewer stop outs may/may not be beneficial to the overall profit, equity curve, drawdowns etc . It has to be balanced with the missed trades.

 

Having said that...Just to show there are no absolutes in trading and decisions are dynamic, I have recently started to increase the No.of limit orders I use in certain markets/situations. Whether this "phase" continues or not we'll see...

 

The "best" order type can depend on style & personality..ie. I generally like to "go with" as opposed to trying to pick the reversal point.

With limits there may be a temptation for some traders to fiddle with/cancel etc as price nears and trades at a level hoping for just "a little bit better"..the result is invariably missing it completely !

 

The Bank I traded for had stats of the order types each trader used because Brokerage fees may be type dependent...eg. A limit Order provides liquidity, A Market order extracts liquidity from the market so a trading platform/broker may charge less fee for "providing liquidity".

 

I invariably used Market Orders, the guy next to me invariably used Limits - No right, No wrong

 

Trade Well

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great post Tim... and while it's true that anyone that's serious about trading should understand this as a one of the 101 basics, for some it may be "missed" or dismissed as important.

 

as for me order type / trade plans are an essential component of my methodology... my risk management is all tied into scaling in and out of trades, etc.

 

i might just throw in a little tidbit that i try to follow when using limit orders for entries using the ES as an example... I always try to place my limit order to the nearest .25 or .75 tick as price tends to reach the even numbers... this one little thing helped improve my fills significantly. actually i also do that on my exit targets as well... 25s and 75s...

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It also depends what you are trading. If you trade the ES, then you will not get slippage on market order.

 

However, if you are trading the TF or CL, then expect 1 or 2 ticks of slippage.

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:helloooo:

It also depends what you are trading. If you trade the ES, then you will not get slippage on market order.

 

However, if you are trading the TF or CL, then expect 1 or 2 ticks of slippage.

 

Depends-- I usually don't get slippage on ES but sometimes get 1 or even 2 ticks.

CL I would frequently get 1 or 2, and in some cases 4 or 5.

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Holy s@&t!!!! I rarely comment, but seriously....... Look Traders, we are on this site because we want to be successful traders. We know what f@&$ing order types are out there. And the crap vendor this e mini dip shoot is pushing, doesn't offer stop limit orders with a pay up limit? Come on that's garbage!! This is my livelihood, if I set a stop loss limit order, I need to know that if I'm at the store, or grocery shopping, that my order will get filled. Most REAL traders use a vendor that offers a stop limit order that has a pay up or pay down setting if it trades through your price so as not to leave you hanging. This guy needs to go to another photo sitting or something, and stop treating people on this site like they are morons.

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I'm somewhat doubting the bolded line.. is this true for ES? I thought only limit orders were held at the exchange. This just doesn't make sense to me unless you mean that the platform will execute the market order faster then one can manually.

 

Tips for Breakout Traders

If you are the type of trader who likes trading breakouts, instead of waiting for price to breakout and then clicking the market button consider using buy stops and sell stops. Placing a stop just above the break out point where you would like to enter will push your order into the market at the point that the market breaks your level.

 

While this order is a market order, placing it well in advance will help reduce slippage because most platforms use a FIFO, (first in, first out) method. Meaning if you want to buy above highs and place your order sooner than the next trader, you will be filled first. If you wait for that breakout and then hit the market button you will be last in line.

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I'm somewhat doubting the bolded line.. is this true for ES? I thought only limit orders were held at the exchange. This just doesn't make sense to me unless you mean that the platform will execute the market order faster then one can manually.

 

Stop orders are held at the exchange, most any in the world I would think anyway. What good would a "protective stop" be if it were not held at the exchange?

 

Here are the order types that CME uses, as one example:

http://www.cmegroup.com/globex/files/GlobexRefGd.pdf

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That's not always the case and is an important topic when choosing futures broker. Some brokers rest your orders on the exchange servers, other brokers rest them on their servers, even more, some orders are held on your own computer only.

 

There is latency (or lag) between the order being filled, thus the result for slippage. I realize the title is corny, and a lot of people think the topic is to basic, but it's an area often overlooked. If you receive slippage often on markets like the Emini S&P or Euro, I'd talk with your broker.

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That's not always the case and is an important topic when choosing futures broker. Some brokers rest your orders on the exchange servers, other brokers rest them on their servers, even more, some orders are held on your own computer only.

 

Can you name a broker who does not put the order at the exchange? Not doubting that it's true, just would like to know any.

 

As for locally held orders, a negative stop limit order, for example, is simulated on my PC, though a regular stop limit goes to CME. OCO orders are simulated locally for me as well, but both orders are actually at the exchange, and only the cancellation of the order not executed is done locally. So yes, some may be done locally, but a regular stop order is always non-local, otherwise, it would not serve its purpose.

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Can you name a broker who does not put the order at the exchange? Not doubting that it's true, just would like to know any.

 

Limit orders are held at the exchange, stop orders are not. IB holds stop orders on their server. With IB the stop orders are time stamped so they are filled in order when sent to the exchange.

 

With some brokers, Lightspeed for example, stop orders are held on your computer. Personally, I would avoid this type of broker.

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Limit orders are held at the exchange, stop orders are not. IB holds stop orders on their server. With IB the stop orders are time stamped so they are filled in order when sent to the exchange.

 

With some brokers, Lightspeed for example, stop orders are held on your computer. Personally, I would avoid this type of broker.

 

OK let's get clear here and get the facts straight.

 

The answer to where a stop order (or "stop market order") resides depends on two things: the broker and the exchange.

 

In my case, my stop order does reside at the CME exchange. I can verify this by looking at the order info in my platform, and verify that it is at the exchange. If you need some proof of that let me know and I will send a screen shot. Also, I called my broker (Velocity) to verify and yes, the orders are at CME, not the broker servers.

 

Some exchanges may not even allow stop market orders (theoretically). If you wanted this functionality then, the broker could offer to simulate a stop market order for you. A more common scenario is an exchange that does not offer OCO orders (CME is one example). In this case, either the broker could simulate the order (such as TD ameritrade), or more commonly, the local PC simulates the order. However, the Eurex exchange natively supports OCO ( Eurex - One-Cancels-the-Other (OCO) Order ). So, hopefully it's clear that if the order type is not supported by the exchange, it must be simulated by the broker, or locally (or by some piece of software between you and the broker).

 

CME Globex has no notion of a true "stop market" order. Instead, they have what they call a "stop with protection" order ( http://www.cmegroup.com/globex/files/GlobexRefGd.pdf ). It's much safer, and ensures that you do not get completely screwed due to a catastrophic event. When you enter a stop order with CME globex, they convert it into a Stop Limit order. The limit price will be the trigger price for the order plus half of what's called the "no bust range" ( Globex No Bust Ranges ) or "non reviewable range" ( TRADE CANCELLATIONS AND PRICE ADJUSTMENTS ). For ES, for example, it's 6 points, thus, the trade may be cancelled if you are slipped 3 ES points. For CL, 50% of the range is 50 ticks. And so on. Here is more information on this process: Question regarding how NT handles stop market orders on Globex - NinjaTrader Support Forum

 

So, it appears that IB simulates stop orders ( http://www.interactivebrokers.com/en/trading/usFuturesStopOrder.php ) and holds the orders on their servers. Why they do this, I do not know. At some point when the order is given to CME, it will be assigned as a stop limit with a 50% no bust range limit anyway, so I don't see the point in simulating the order on their server.

 

If anyone uses NT and wants to see based on the broker where their order resides, here's a document:

http://www.ninjatrader.com/support/forum/showthread.php?t=5349

 

I hope this clarifies things.

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Some brokers rest your orders on the exchange servers, other brokers rest them on their servers, even more, some orders are held on your own computer only.

 

. . . And some brokers will give you the option to chose which of the above you wish to do. It's therefore important to know what 'default' setting of your platform is in this respect, and how to change it should you wish.

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    • You should never give in to the rumors as it could lead you to bankruptcy if it isn't true.
    • Yeah, and you should never stop learning. If you wish to survive in the Forex Market, the only way to do it is by learning all the time.
    • Date : 1st December 2021. Market Update – December 1 – Taper gets a boost & Transitory gets “retired”. Powell “retires” Transitory in light of Omicron & surprisingly suggests faster taper – Stocks tank, Dollar& Yields rise on faster tightening expectations.   USD (USDIndex 95.90) back down from leap to 96.60 on Powell testimony. Saw fresh wave of risk aversion as Treasuries sold off, yields spiked (particularly the 2yr) , Stocks fell significantly with USA100 down over -2.4% (APPL bucked the trend +3.16%) USA500 -1.90% (-88pts) 4567 & USA30 off 652 pts or -1.86%. Consumer confidence saw a slump in the headline, and a rise to a 13-year high in the inflation component. The Chicago PMI fell to 61.8. Home prices increased to fresh record peaks. US Yields 10-year rates were down over 7 bps to 1.41% before closing at 1.443% before recovring to 1.468% now. Asian Markets – Equities – Topix and Nikkei are currently up 0.4%, the Hang Seng bounced 1.1% and the CSI 300 is up 0.1%. The ASX, which outperformed yesterday, dropped back -0.3%. Data over night – Japan’s manufacturing PMI came in stronger than expected and while China’s private PMI reading signalled stagnation at 49.9, that was compensated somewhat by the stronger than expected official manufacturing PMI released yesterday. AUD GDP was not as bad as expected -1.9% vs -2.7% & 0.7% last time. USOil – continues under pressure, down to $64.08 (14-week lows) yesterday – recovered to test $68.00 today – expectations continue to grow that OPEC+, will put on hold plans to add 400,000 barrels per day (bpd) of supply in January at their meeting tomorrow. Gold finally some intra-day volatility – Powell surprise spiked to $1808 – before testing $1770 with a couple of hours, back to $1788 now. FX markets – Yen rallied USDJPY dipped to 112.50, back to 113.40 now, EURUSD now 1.1326 & Cable steadied to 1.3300-1.3330. European Open – December 10-yr Bund future down -11 ticks at 172.26, slightly outperforming versus Treasury futures. Central bankers may be getting more nervous about inflation outlook, but Omicron clearly is clouding over growth outlook & in Europe at least that will boost the arguments of the cautious camp at the central banks. US yields remain firmly below the levels seen before the new virus variant hit the headlines & sentiment is likely to remain jittery, even if stocks are set to back up from yesterday’s lows, with DAX & FTSE 100 future posting gains of 0.9% and 0.7% respectively & a 1.4% jump in the NASDAQ leading US futures higher. Data releases today kicked off with a big miss for German Retail sales (-0.3% vs 1.0%), higher UK house prices & firmer CPI from CHF. Today – PMIs (EZ & UK),US Markit Final Manufacturing PMIs, US ADP and ISM Manufacturing PMI, JTC and OPEC meetings, BoE’s Bailey and Fed’s Powell & Yellen testify. Biggest FX Mover @ (07:30 GMT) NZDJPY (+0.60%) Risk-sensitive currencies remain volatile, from a slide to 76.65 yesterday, today a rally to 77.80. Currently MAs aligned higher, MACD signal line & histogram over 0 and rising, RSI dipping from 70.00 at 58, Stochastic remain OB. H1 ATR 0.172, Daily 0.84. Always trade with strict risk management. Your capital is the single most important aspect of your trading business. Please note that times displayed based on local time zone and are from time of writing this report. Click HERE to access the full HotForex Economic calendar. Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE! Click HERE to READ more Market news. Stuart Cowell Head Market Analyst HotForex Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
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