VTS Community,

Midday on Tuesday the VIX index was up 42%, and then yesterday the markets made an about-face and said:  “nothing to see here folks.”  It’s been an interesting year so far with volatility all over the map and whenever this happens it’s natural to see an increased number of big intra-day moves.  Sometimes selling off into the close and other times seeing strong recoveries.  Here’s a question from a member of the community that touches on this concept:

 

Jay writes:  “I executed my trade today at market close and got the worst price of the day.  Should I be trading earlier in the day?”

This is a great question thank you.  So first Jay, I’m sorry to hear that.  It’s always very frustrating when that happens.  I know this won’t make you feel any better but I also got the worst execution price in the last couple trades we took as well.

 

I send out the daily trade signals before 12:00 p.m. Eastern Time to allow people plenty of time during the day to get it executed.  So the big question is, what time of day is best?  Some aren’t going to like this answer, but it really doesn’t matter. 

Statistically there is no long-term difference in prices from noon to market close so it’s best to accept that it’s totally random.  No matter what time of day you execute your trades you’ll have plenty of times when you get a worse fill price, but there will also be just as many where you get a better fill.  It will average out in the long-run.  Here’s a couple examples of just the last two trades we took:

 

May 29, 2018 we closed our SVXY position.  When the signal was sent it was trading at 13.12.  Markets sold off later in the day though and by the time markets closed it was at 12.70.

* I execute my trades near or at market close, so by the time I executed my trade I got 12.70.  That’s about 3% worse than when I gave the signal.  Not happy…

 

May 30, 2018 we opened a new wheel of fun put trade on XLP.  When the signal was given it was trading at 0.62.  The markets did the opposite yesterday, climbing strongly into the close.  Again I execute my trades near close and by the time I got around to inputing my trade I filled at 0.43.  Again, feel like I got robbed.

 

However I also know there have been plenty of times in the past when I got the best fill price of the day.

 

May 24, 2018 we closed MDY.  When the signal was given it was trading 353.75 but I execute at market close and got 355.37.

May 24, 2018 we also closed out ZIV.  At the time of the signal it was 74.50 but at the end of day for me it was 75.34.

 

So personally in my last 4 trades I had two that went in my favour and two that didn’t.  I’m still down on balance, but I don’t worry about that because in the long-run it will average out.  The fact is markets move around during the trading session and there’s no way to predict what will happen on such a short time frame.

Investing is just as much an emotional challenge as a mathematical one.  Something we know through studying psychology and human nature is, we tend to remember events that negatively affect us and we often ignore or forget the events that positively affect us.  We kick ourselves when we get a poor fill price but don’t pay much attention to the good ones.  Human nature…

 

My suggestion:  Treat intraday prices as a random walk

Whether you do like I do and execute trades at the same time everyday  (for me near or at market close)  or whether you just execute the trades randomly throughout the day when convenient, it won’t matter in the long-run.  You’ll win some and lose some but on balance the law of large numbers will average out.

 

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