New Article on The Importance of Trade Execution Tactics

Sep 11, 2009: 1:24 PM CST

I recently had an article published at the large TradingMarkets.com website that I wanted to share the link and some excerpts with you.

The article is entitled “The Importance of Trade Execution Tactics,” and in the article I cover how making small enhancements to your trade entry strategies can add up to hundreds if not thousands of dollars in savings each year depending on how active a trader you are.

I speak mainly to stock traders (though the insights apply to options and futures traders as well) and to keep the example simple, I discuss the expected slippage that comes from trading in and out of 1,000 shares at a time as many retail day-traders do (or in multiples of 1,000 shares).

Did you know that if you trade 5 times per day on a 1,000 position and manage to ‘slip’ 2 cents per trade, then that’s $20 per trade or $100 per day or $500 per week and $2,000 per month in slippage?!  No, we can’t ever eliminate slippage, but we can try to reduce it by judicious use of both Market and Limit orders.

Here are some of the questions we need to answer when considering trade execution:

“Are we going to use a market order or limit order entry/strategy?”

“Are we going to wait for an exact, precise price or do we need to get in right now without hesitation?”

“How much time – if any – should we wait between our signal is triggered and our entry/execution?”

By the end of the article, I define and explain when it’s best to use Limit Orders (rangebound markets when looking for precision in an attempt to minimize slippage) and Market Orders (during a price breakout or range expansion move where trying to save pennies in slippage can cost us the entire trade if we’re left on the sidelines).

Thank you to all the staff at TradingMarkets.com for allowing this opportunity and for me to share this new article with you!

Corey Rosenbloom, CMT

7 Comments

7 Responses to “New Article on The Importance of Trade Execution Tactics”

  1. colodude Says:

    Hi Corey, I tend to buy at market, then when the dust settles, sell on limit. Generaly, I care about the delta on what apparently are called swing trades–my trades may last 45 minutes, or as long as three days, depending on the orneriness of the market. This seems to address partly the issue. Now I only trade long, and use (large volume) inverse ETFs when I'm following a decline. hat way, a limit sell always works in my favor. (Except when the price just “nicks” my limit price.)

    I haven't tried to sell 1000 shares yet, but I wil soon. This seems the hardest to manage, because there is a tradeoff of commissions as well as the slippage. In general, does it make sense to make one trade of SSO,SPY,SH or SDS rather than splitting the orders?

    Thanks.

  2. Corey Rosenbloom, CMT Says:

    Colodude,

    Excellent points!

    In swing trading, slippage is less of a factor because you're trading less often (maybe a few times per week) and you're holding for targets much larger than a dollar, so a few pennies if of little concern in entry and exit. It's more important NOT to miss the trade!

    In regards to commissions – it depends on your broker. Some brokers offer a “flat” fee of say $10 per trade regardless of the number of shares so that doesn't matter as much as other brokers who charge say $0.10 or so per 100 shares (which is $10 per 1,000 shares, but $20 per 2,000 and $30 per 3,000 etc). It's more economical for 'per share' pricing when trading smaller orders and for “flat fees” for larger orders.

    In a liquid ETF, you are going to get filled without problem (especially in those you mentioned). It's these smaller, lesser known ETFs and lesser known stocks that can cause problems.

    New traders are often drawn to lower priced stocks so they can trade more shares at a time, but this can result in higher slippage. My worse 'slip' early on in my career was about 40 cents in an $8 stock trading market order 3,000 shares. No fun. I couldn't believe it.

  3. Dan de Man Says:

    Hi Corey,

    Thanks for the article. Great tips! I am a swing trader and I NEVER use market orders because its the easiest way to get screwed. Using a market order basically says to the market, I'll pay anything or take anything for my shares. Limit orders are the way to go. I also use mental stops that alert my cell phone real time.

    One thing I would recommend as a swing trader to avoid slippage is to buy your shares in the last minute of trading. I know it sounds crazy but that is the best way to avoid slippage long term as a swing trader.

    Regards,
    Dan

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  5. Dominick Says:

    Good article Corey, thanks for the insight.

  6. Dominick Says:

    Good article Corey, thanks for the insight.

  7. Stock Trading Online Says:

    The Importance of Trade Execution Tactics are best for stock traders….

    Thanks bob