How to improve trades with volatility?


I am trading monthly 3 screens, 10 stocks deep each one, with a high turnover. So, I am doing around 50 trades a month. I use limit orders.

Maybe possible to use volatility of each stock to optimize those limit orders?

Please, could you recommend any book or white paper on how to improve execution of limit orders, bearing in mind volatility of each stock?

Thanks a lot!

Juan Carlos

1 Like

I have no answers, but some random thoughts to inspire possible directions to research–

If you really care about this, you might want to try the adaptive algorithms feature at Interactive Brokers.
I haven’t used them.

I do my trades as simple limits, moving them manually, not waiting long at any given limit. Seconds, usually.
Obviously you want to interleave buys and sells in case there is a sudden broad market move between your buys and your sells.
These are both easier goals to manage in a calm market.
If the market is gyrating exuberantly when I’m about to do my trading, I don’t do the trades.
Have a coffee and read the newspaper for a half hour or an hour, then have a look again.
Sometimes simply waiting till the next day is a good idea.

50 trades is quite a bit, depending on what the trades are and how big they are etc.
Be sure to estimate what your trading costs per year are.
Commissions, and some at least token estimate of the losses on bid/ask spread.
If the total over 1% of your portfolio per year, the rule of thumb is to rethink your choice of strategy (or broker) a bit to get that down.

Depending on the type of security you’re trading, you might consider market-on-close trades.
There is no bid/ask gap cost at all: every trade is in effect at the midpoint at the closing auction.
Just don’t try it with things that are not fairly liquid. Things trading a million a day are, in my experience, fine.
I used to go lower than that too, maybe half a mil, but you will have to feel it out and test the executions to track anomalies.
For a while I rand a strategy with 3-day holds using market-on-close.
That particular strategy didn’t make me money, but nor did it cost much to execute.



Don’t know much about it but is there a way to use a stocks beta number to calculate a limit price.

I kinda lean toward just making your trades at limits or as suggested using a market at close order where you get the end of day auction price. This has the advantage of tracking with end of day data providers and having some confidence in your backtest meeting trading reality.

There are a bunch of different ways to do this, but without tick or small time increment data it is difficult to tell if you are hurting or helping with whatever approach you are using. But here’s a generalized approach.

  1. Pick a measure of daily volatility (beta, ATR, H/L spread…and many more)

  2. Figure out that measure for each stock

  3. Use it straight or adjust it based on current VIX level

  4. From either the open or some other quote point you pick during the day, take some fraction of your volatility measure subtract it from the quote and set your limit there.

Of course this assumes the market will go down from the quote you chose to set your limit order by.

The above can be scaled to daily, 4 hours, hourly or less…the smaller the time period you chose the more likely you will get “some” price improvement just due to market noise and the ebb and flow of dueling algo traders.

Personally I think given the efficiency and the nature of how most trading volume occurs now days it will be an extremely difficult thing to actually improve your bottom line over multiple trades. Sure if you try something you will do better from time to time and our brains are wired to register those wins. But it is equally probable that the opposite will occur and our brains tend to ignore the losses.

Where the hard work comes in is closely and accurately tracking your method and, with time, figuring out if you are helping or hurting.


I have played with limit orders inside the spread. Some times you get a fill, sometimes the price runs away on you and you eventually have to pay more or get less than if you had not tried to get an inside fill.

More than once this has happened: I’ll put an order just inside the opposite limit and it doesn’t fill. The I’ll move it to the midpoint where it also doesn’t fill. But I want the trade, so I change it to a market order. And get an immediate fill at a price better than the midpoint.


And get an immediate fill at a price better than the midpoint.

Good broker. Not scalping you.


I do my trades as simple limits, moving them manually, not waiting long at any given limit. Seconds, usually.

I do the same, but not in seconds. With my option trades I typically have five buys and five sells in a session. I set them all up in a spreadsheet to keep track, and then I place the first sell order, followed by the first buy order, and so on down the list. I start with the sell orders one tick below the ask price and the buy orders one tick above the bid. They almost never get executed at the initial limit. Once all orders are entered, I cycle through them again, dropping the sell limits by one tick and raising the buy orders the same way. Eventually some of them are executed, and I keep moving the limits on the others, until they are all executed. Practically all orders end up being executed inside the initial spread. My trades are typically all done that way within about half an hour.

With stock trades I don’t bother doing it that way. In most cases they are liquid enough that the spread is very narrow. I enter limit buy orders at the ask and limit sell orders at the bid, just to make sure I’m not fleeced.



And get an immediate fill at a price better than the midpoint.

Ray, which broker do you use for these trades?

“And get an immediate fill at a price better than the midpoint.”

Ray, which broker do you use for these trades?

Probably it was Etrade. But I also have accounts at Schwab (rarely trade, so probably no them) and Merrill Lynch.

I trade the same weekly options at IB and Schwab…I get pleasant surprises from Schwab quite frequently…IB, never.


I often get trades below my limit price at Schwab.