Limit Up Days

General discussions about futures.
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Limit Up Days

Post by jsrudolph » Thu Jun 12, 2008 3:25 am


I am new to mechanical trading and was wondering whether someone could tell how to handle limit up days? in other words, if i get a buy signal and the market has gone limit up, do i buy the next day, ignore that trade or put a bid in below the market and wait and see if i get taken?



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Post by zacharyoxman » Thu Jun 12, 2008 9:33 am


There are a few ways to handle this. First off, Trading Blox has a trigger in the Global Parameters that handles this specifically:

Trade Futures on Lock Day

When set to false, you will not have fills on any type of order (exit nor entry) entry on limit up or limit down days, when the trade is in the direction of the lock.

Now, in terms of how I've seen it handled over the years as a broker, I have seen many people (lets assume it is a new Long Entry) simply place a limit order at the limit up price and wait for a fill...even beyond the first limit up day. I have also seen others do as you say, which is put in a limit at the initial supposed fill price and wait. The problem with the later is that if your system shows "filled" and you are simply working the order and are not in the trade, you will cause a host of issues going forward for account equity, new trades, etc.

One thing that needs to be considered is the "new" risk on the trade. Lets assume you have a buy in for Crude Oil and the market opens limit up at $10 higher (yes, I know they would expand the limits to $20, but lets just assume $10 is the lock for that day). Assuming you were able to fill the next day and the open was exactly $10 higher than your systematic entry price, the new synthetic risk on the trade is $10,000 greater. Now, this assumes you system DOES show the fill but you did not have one in your real account. That is an insane level of slippage on a trade, and you need to consider what impact that would have if the position went right to the stop without modification.

This shows why you need to set the "Trade on Lock Limit Days" to FALSE.

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