How to set up a Trade Order
Even though setting up an order might seem like an easy task, there are still are many things that you can do wrong. For example the biggest mistakes that many traders make is using market orders. A market order gives you the next available price. This will get you filled very fast but more often than not the price will be bad. So what should you do instead? Well, instead of market orders, use limit orders. Limit orders allow you to set a fixed price at which you want to get filled out. Either you will get filled at this price or you won't get filled at all. As long as just don't set your price too aggressively and the security is liquid enough, you will get filled at your desired price anyway. But even if your order isn't filled it is often better to miss a trade and to accept a bad entry price, since a bad entry price would mean more risk and less profit potential. To choose a good limit price it is important to understand how the “Bid-Ask Sread” works. The bid price is the highest price a buyer is willing to buy the underlying security for and the ask price is the lowest price a seller is willing to sell it for. The bid-ask spread is the sprint between these two prices. To get filled as fast as possible, you need to move closer to the ask price when buying and closer to the bid price when selling. For most securities however these prices change all the time. Therefore you can often get filled at the mid-price. That's also why I recommend always setting your limit order price at the mid-price to begin with. If this doesn't get you filled, you can always readjust later on. Ordering at the mid-price can save you thousands of dollars over the long run. Last but not least I recommend setting your orders to expire at the end of the current trading session. But if you don't want this you can always choose a good to cancel order. This order type will stay active until it is either failed or you cancel it manually. This is especially useful to automatically take profits on a given trade. For instance, if you know your profit target you can just send out a good to the concert order as soon as you open your trade and let the order sit. The same can be done for the downside with a stop loss. An alternative to good to the cancel orders are good to date orders. The only difference between the two is that good to a date expire after a certain preset days whereas the good to cancel order has to be concert manually unless it's filled. Some brokers even offer bracket orders.
These are also known as one cancels other orders. Such an order allows you to send out two orders one to take profits and want to cut losses and as soon as one is filled the other one is automatically cancelled. This is a great way to automate your trading plan. It's hard to make discretionary trading more mechanical than this. Last but at least here are some tips to get feel it faster First of all, make sure to trade liquid securities. If you aren't trading liquid securities fails will take much longer and even worse, it will leave a lot of money on that due to a wide bid-ask spread. If you're trading options you could analyze option chains for options with high open interests and volume. Getting filled on these options is much easier than other ones. The next tip would be to scale into your trades. Instead of opening your entire position in one order break it down into multiple smaller orders. This can decrease field times dramatically. Note that you should only try this if your broker's commission structure doesn't charge you too much for each order. Otherwise, placing orders at route numbers can often help you since route numbers typically attract much more stop losses and limit orders than other prices. If none of these things help, you could always move your price closer to the bids or ask price. But only do this if the new price is still good enough. In summary, you should always have a clear trading plan and make sure you create this before your trade. If you don't know how to create a trading plan just use my template from the previous chapter. Furthermore, make sure to keep a trading journal so that you can track your progress and learn from your mistakes. Otherwise, don't use market orders but instead use limit orders. A good limit price to start with is the mid price. Last but not least focus on trading liquid securities with high-volume, otherwise you're just throwing money out of the window.
