Limit and Market

I once spent one hour to investigate the more than 40 order types provided by IB. The conclusion is some of them are really meaningful and easy to use. But the result is till now, I still only use market and limit.

Some order types serve for specific purpose, like on mkt close, one trigger others or one cancel others, etc. But many are invented to capture market dynamics.

It's hard.

I believe every trader has encountered the following situations: when you set a limit order to buy at a reasonable price, chances are your limit order will be crashed by fast-moving market trend; when you want to ride on the trend and use a market order, chances are your buying and selling prices will just become the resistance and support prices. Read Chapter 11 in "The Legacy of Fischer Black", you may see an interesting statistics. Actually, I think such experiment should be extended from current binary bid/ask to a broader 1-dimension line.

We are focusing on short-term here, more volatile and more gut feeling style. In this case, missing one opportunity to close a position in 1 min may cost you a whole day to come back. That means locked capital and increasing risk. That's why an intra-day player should be very good at spot bottom and peak.

Pick up a good stock with up-down potential and enough liquidity. Check the history and news to find some hints. Read the headlines to know where it's going generally. Based on those and your experience, you should be able to tell what range its up and down should be limited to according to overall market. Then game starts. Better wait for the first roundtrip to appear and use that as benchmark. In short term, you may use that for as long as half an hour but watch out the risk. In long term, you can roughly guess the day move and set a limit. The best thing is when you come back at market close, you will find it has hit your limit and then turn around. It happened to me for many times. Hope it will work for you as well.