How to get the best average price?

Question

I use a service that gives me buy and sell alerts. I need to know what is the best way to buy in at the lowest average price. Assuming that I have to buy in all on one day. If I buy half at the time of the alert and half at the close, I may get a fairly representative average of the days trading range. But how can I improve upon that. What size of a position should I initially take? How quickly should I add to the position if the price rises? How quickly should I add to the position if the price falls? From experience I know that it is dangerous to move in too quickly if the price is falling, and it is also inefficient to move in to slowly when the price is rising. But is there a formula that will yield the best average price, when applied on a regular basis?

Answer 1

You can set a specific price for a trade instead of buying or selling "at the market". When buying, choose a price that is lower than the current price. The drawback is that if the price never goes down or it doesn't go down enough, then the trade will not go through. Also, it could continue falling even after you buy at the lower price. Other than that there is no way to consistently get a below average price without knowing what the price is going to do ahead of time.

Answer 2

There are algorithms to help chop up big orders according to specific rules for best average prices.

http://en.wikipedia.org/wiki/VWAP

Answer 3

All of that buying and selling intraday will eat up your profits, unless that you are trading heavy amounts.

If you have to buy it all in one day, Check out Europe the night before and you'll have an idea of which way that we are headed.  If it was ugly the night before, wait a bit.  Then check out Asia later in the day. This will help as well.

THE LAST HOUR IS WHERE THE ACTION AND VOLATILITY IS.

The market has been seriously moving in the last hour for the past year or so.  If you know which way the market is heading (you should) simply buy in around 3:30 if its heading up or buy in at 4:20 if you knew it was heading down.

Good luck!

Answer 4

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