Why A Bad Fill Can Be A Good Thing
You may have heard the expression, “The worse
the fill, the better the trade.â€Â As I write this I can’t recall who said it
first, but it wasn’t me. The expression refers to the fill price you get on a
market order for a stock as it moves through its pivot point. Many times there
will be several traders lined up to purchase a stock as it breaks out of a
basing formation. When this happens, a large imbalance of buy orders may
quickly come in to the market and push the price up rapidly. In some cases, you
may even see a gap on the intraday chart.
Today Novastar Financial
(
NFI |
Quote |
Chart |
News |
PowerRating) provided
an excellent example of a bad fill leading to a good trade. In the daily chart
below, you’ll notice that after what was a terrific run-up, NFI formed a tight
flag formation, which lasted 18 days, barely long enough for most
intermediate-term traders to consider. The top of this flag formation was at
$61.00.
 
Now let’s look and see how the
stock traded near its pivot point today.
 As you can see, after the
price hit $61.00, the buy imbalance caused a gap. The next trade took place at
$61.40. Most traders with market orders in were probably pretty upset to see
they got filled around $61.40, rather than the $61.05 or $61.10 they were
probably hoping for and expecting. Traders that held on to their shares after
the “bad fill†were rewarded in spades.
An important thing to note is that a chart is a chart is a chart. It doesn’t
matter if you’re looking at a weekly, daily, or 5-minute chart. Bullish
patterns, like gaps that go unfilled are bullish in any time frame. Whether or
not this trade works out over the intermediate-term has yet to be seen, but the
poor fill at the breakout was a powerful signal that there was strong buying
pressure today.
A word of caution on using market orders…don’t enter them before the open. You
may end up on the wrong side of an opening gap reversal if you do.
Make sure to enjoy the long weekend. It’s the last market day off for two
months, so don’t waste it thinking about trading. Go have some fun.
Until Monday,
Rob Hanna