TimingCube - Trade executions - trade executions,market order,limit order,broker,market open,intra-day

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Signal Update

Current Signal Performance as of

Signal Type	Trade Date	Index	Return since issued
		Nasdaq 100
		Russell 2000
		S&P 500
		QQQQ

Cumulative Returns since First TimingCube Live Signal () as of

Index	Long Only	Long Only with Margin	Long & Short	Long & Short with Margin	Buy & Hold
Nasdaq 100
Russell 2000
S&P 500
QQQQ

Note: QQQQ returns are included for continuity sake.

Market Update

Encouraged by lower oil prices, markets rallied the first four days of the week. As was the case last week, the rise occurred on low volume, showing once again that institutional investors are in no urge to buy. Then on Friday, despite falling oil prices, the major indices reversed course to close markedly lower, taking the Nasdaq composite back below the 2,000 level and its 200-day exponential moving average (EMA) in the process. The Russell 2000 even gave back the entirety of the previous days' gains to finish the week 0.13% lower. The Nasdaq 100 fared better with a 1.11% weekly gain but still closed under its 200-day EMA. As for the S&P 500, it gained 0.71% on the week and, like the Russell 2000, remains below its 50-day EMA.

The week's action had no impact on our Model and our Sell signal remains in effect.

Trend Timing School

Trade executions

Whenever we go through a signal, the general question of which type of order is best comes up. Our Web site states that to achieve the full benefit from the signal, you should act on it as soon as possible. Since signals are issued in the evening after the markets close, your orders should optimally be placed before the market opens on the next trading day. If your selected investment vehicle is an ETF the order should be executed at the open. The crux of the issue is the realization that market orders seldom get filled exactly at the official open price. The natural reaction is to first be suspicious of your broker and to blame them for the difference. The next logic step is to look for ways to avoid the issue by using limit orders instead. But are limit orders really better?

Note that this entire discussion does not apply to trading mutual funds. Since mutual fund trades are all filled at the same price, the closing price, there are no market or limit orders (some fund families, e.g. Rydex, offer a second daily execution slot). The only way to optimize mutual fund trades is to preferably select an exchange order by staying with funds of the same family, instead of a sell followed by a buy which would get spread over two days.

Taking the most recent Sell signal we issued on the evening of March 16, 2005 and QQQQ as an example, we can see that the official open price on March 17th was $36.61. Most of us with market orders entered prior to the open received a lower price, and from what you tell us it sounds like many of these orders got filled in the neighborhood of $36.55. In this particular instance, had you placed a limit order at $36.62 (the previous closing price) you would have been fortunate and your order would have been filled a little later at your $36.62 limit price. In fact, in this particular instance, if instead of placing an order prior to the market open (market or limit) you had waited to observe the market's real-time action during the day, you might have gotten even more lucky and snatched as much as $36.89, the intra-day high on March 17th. The problem with these approaches is that the market could have just as well gone down steadily during the day and you would have ended up without a trade, or have been forced to take a position at a substantially lower price to avoid being left stranded on the side lines.

Let's review and compare the two types of orders discussed here:

A market order is to buy or sell immediately (or as soon as the corresponding market opens) at the best price possible. It guarantees the order will be executed, but because orders placed when the markets are closed are subject to market conditions existing when the markets next open, it does not guarantee the price. A buy order is typically filled near the ask price, and a sell order near the bid price. Note that some brokers also provide an option to specify "On the open" as the time in force for securities traded on auction exchanges such as the New York Stock Exchange (NYSE). There is no such thing as "On the open" orders for electronic exchanges such as the Nasdaq or Over-the-Counter (OTC) markets. Because of how trading actually takes place, "On the open" orders still do not guarantee you will get the exact open price. By law, brokers are obligated to give each client the best possible order execution and they now have to report to the SEC on their trade execution quality. This largely eliminates some of the abuse that used to take place, but it still does not guarantee you will get the exact open price because of the many different ways an order can get filled.

A limit order specifies the maximum you are willing to pay for a buy order, or the minimum price you want to receive for a sell order. It guarantees a minimum/maximum price, but it does not guarantee execution. If the market moves against you from the open, your limit price may not be seen and the order will remain dormant until it expires. Professional traders frequently use limit orders to limit their risk. While limit orders can be beneficial for low volume or highly volatile securities, they also require time and attention to detect what the markets are doing and make adjustments as necessary. Some brokers also charge higher commissions for limit orders.

Order Type	Pros	Cons
Market	Guaranteed to fill	Price is not guaranteed
	Execution speed	Higher exposure in fast moving and volatile markets
	Lower cost*
Limit	Price is guaranteed	Can lose the opportunity to buy
Limit	Only risk is that the order might not fill	Higher cost*
*Broker dependent