Daytrading Tips

Types of Order Placement

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Order Placement

There are a wide range of order types that traders can use to get their positions into the market.  Our Order Placement Worksheet can be helpful in recording your orders.  The following is an overview of the different types of orders:

Market Orders.  If you don’t want or care if your order has any time, price or other restrictions on it, and you wish to get into or out of a market as quickly as possible, use a market order.

     “Buy me three December S&P’s at the market.”

This lets your broker or the floor know which side (long in this example) of the market you want to be on, the number of contracts and the delivery month.  It also informs him you want to be filled immediately.

Market on Open (MOO).  These orders are traded at the “open.”  Most exchanges designate the first 15 minutes as the “open.”

Market on Close (MOC).  This order is designated to be traded on the close (usually the last five minutes of trading.)

Day Orders.  Day orders are limited to execution the same day, or to a single trading session.  At the end of the trading session, the order is canceled if it hasn’t been filled. 

If there are two or more trading sessions for the future you are trading, your day order would not carry over to the next session on most exchanges.  It is important to ask whether this is the case with the exchange you are trading.

Good Till Canceled (GTC).  This type of order stays in the market until it is filled or until you cancel the order.  Many of the exchanges will not accept this type of order.

Limit Orders.  You use a limit order when you want to specify a price or price range in which you wish to be filled.  This order gets filled at your price or better.  This sounds terrific; however, on the floor it receives a lower priority than a market order and if the market is moving, it may move out of the price range you were willing to accept without you being filled. In this case, it will be necessary to lower your limit in order to catch the move.

Depending on volatility, slippage can often account for one point entering and one point exiting the market. Therefore, the primary advantage of using limit orders is that slippage is substantially reduced.

     “Buy three December S&Ps at 975.40 limit.”  You would be filled long at 975.40 or at a lower price if price moves below 975.40.

Stop Orders.  On a stop order, when price reaches your stop price, the stop order becomes a market order and is treated accordingly.  A sell stop becomes a market order when price trades down to or through your stop price.  A buy stop becomes a market order when price trades up to or through your stop price:

     “Buy three December S&Ps at 970.10 Stop,” or “Sell two December T-Bonds at 112.12 Stop.”

As daytraders, we use stop orders to control losses. If you are long, you place a sell stop either below a resistance area or a certain distance away from your buy fill. This is called a “fixed money management stop.”

Stop orders are also used to lock in profits. If you bought three S&Ps at 970.00 and price moves to 972.00, it is prudent to protect one-half of your open profits.  Therefore you would:

     “Sell three December S&Ps at 971.00 Stop.”

Order placement is crucial in daytrading. Therefore, we use market orders.  With the larger intraday price movements prevalent today, I don’t quibble over a few ticks. If we see a trade that our systems say to take, we go for it.

We use stop orders for loss protection and locking in profits. Once price has moved in our favor a certain distance, we attempt to protect at least one-half of our open profits.

In ordering: Be patient, wait for the Signal. Don’t be greedy, don’t jump the gun. You must have discipline to take the Signals when they occur, adjust your stops and take profits as the Signals direct.

There is only one way to exit the market when daytrading: When price approaches or trades through your target price, get out at the market. You then must quickly cancel any protective stop orders you have resting in the market.

If your trade immediately moves against you, get out now. Allow your protective stop to get you out, or if there is some compelling reason to exit shortly after your entry, then get out immediately. Then, make sure you cancel your protective stop, otherwise you will have a reverse entry forced on you. If you do get a forced reversal entry, use a market order to go flat and do it without hesitation.

You must have the discipline to handle your orders in the manner we have discussed. Otherwise, you will probably join the ranks of 85% of all traders -- the losers.

The following is an example of an Order Placement Worksheet that provides an outline of the order types frequently used by daytraders:

Order Placement Worksheet