Using Market-on-Close or Limit-on-Close Orders
For strategies like the TQQQ Trading Strategy that buy or sell at the closing price of the day, the most effective order type is called a market-on-close.
A market-on-close (MOC), or sometimes called a limit-on-close (LOC), is an order type that buys or sells a stock or ETF at or just after the market closes for the day. The price the trader gets is the last price dealt at the very end of the trading day.
Difference Between a Market-on-Close and Limit-on-Close Order
Both a market-on-close and a limit-on-close are used to get the closing price of the day for a stock or ETF.
A market-on-close order is a market order, meaning that the trader gets whatever the market price is at the close of the day.
A limit-on-close on the other hand is like a market order, with the only exception that the trader enters the limit price they are willing to pay. This means that the trader puts a cap on how much they are willing to pay for the stock or ETF.
For example, if the stock was trading around $12.25 all day and an LOC order was entered for $13.01, the buy will not happen if for whatever reason the stock spikes at the end of the day to $15.33. That can happen for many reasons, including a fat-fingered order entry someone in the world made. It adds a little extra security by ensuring you are not buying at a market price that is out of whack.
Why Use a Market-on-Close or Limit-on-Close Order?
MOC (LOC) orders are often used by day traders to close positions they do not want to hold overnight. They can also be used by institutional traders to buy and sell index components.
However, for the purposes of the TQQQ Trading Strategy, an MOC or LOC order is used simply to capture the closing price of the day AND make the system very easy to trade.
Rather than stressing about what price to buy or sell TQQQ at when a Green Bar or Red Bar signal appears, an MOC or LOC order can be entered once we are sure the buy or sell signals will continue into the close. This makes the system easier to trade.
As someone who has a full-time job, an MOC/LOC order allows me to buy TQQQ at the close as per the system rules, without the need to be at my computer when the market actually closes.
All the backtesting that generated the strong results of the system was done using closing prices for the day.
Risks of an MOC/LOC Order
It would be irresponsible of me not to make you aware of the risks of using a market-on-close / limit-on-close order type. Although for a liquid ETF like TQQQ, these risks are reduced, strange things can still happen.
Here are some of the more common risks:
- The market may move a lot during the day so the price you pay may be higher than when the buy or sell signals are generated.
- If you are only allowed a LOC order type (like those of us in Canada), then your limit price may get blown through, and no order will trigger.
- Not all brokers offer MOC or LOC order types. If you don’t see it, call them. If they are not available, then you can just manually trade as close to the end of the day as possible.
For a system like the TQQQ Trading Strategy available at Robotic Investing, the MOC/LOC order type works well.
To learn more about the TQQQ Trading System, check this link out.