Adrian Reid explains how to execute trades at the official opening price using opening-price match orders instead of market orders. Market orders typically slip after the match closes. Large orders can move the opening price, while small limit orders placed correctly get included in the match.
Okay, so the key to executing the Fear Harvester or any mean reversion system. Well, where you're trying to get the opening price is to make sure you get your trade executed in the opening price match. That means a market order won't do it because what happens is the market is closed until the morning. And when the market opens, the buyers, sorry the, the buyers are bidding up with limit orders and the sellers are offering their shares for lower prices. And in a liquid stock there's an overlap, right?
That overlap, when the market opens, the first trade is the match of all of the overlapping buyers and sellers at the official opening price. Now if we get that, then we, then our trade is at the opening price. And if we compare later on to the backtest, we will have the same price the back test got. We don't get that opening price. And like we have a market order, the market order gets executed immediately after that match, right? The market, as soon as the overlapping buyers and sellers are matched, then all that volume in the middle disappears because that's trade. Their trades are executed immediately in this buyers and sellers which don't quite overlap, they're usually a tick or so apart, right. And the market order to buy will then hit the lowest seller immediately you've got that slippage.
Now that may happen to be at the same price as the official open, but likely it won't be likely it'll be a tick away and a tick on say a 15 cent stock could be half a cent and that's all of a sudden a lot of slippage, right? So you got the key is to, to execute in the system wells to avoid that by getting in in the opening price match. Now.
There'S a difference between getting the opening price and setting the opening price. Now let's say I want to buy 50,000 shares and it's a small stock that doesn't trade very much volume. We have the overlap here and we put our 50,000 share buy order way up here and the overlap is down here will definitely get executed probably 50,000 shares we're trying to buy up to this level. But guess what, our 50,000 share order is going to drag the official opening price way up here. If there's a lot of volume in the overlap and we put a 50 share order somewhere in the top of the overlap, it's probably not going to affect the overlap, the opening price much at all, certainly not noticeably. So what you want to do is get practice at placing a limit order within the overlapping price. So if you're buying, you want to bid up such that when you look at this, the volume of sellers and the volume of buyers realizing that the ones that are overlapping will get traded in the opening price match, you want to make sure yours will definitely be in the overlap. If you put the limit order too low and there's more buyers above you than there are sellers down to that level, then your order won't get filled.
Sam.
