It's the trader's dilemma use a limit order and you won't get slipped but you'll lose most of your opportunities at catching run away price, use a market order and you'll definitely enter the market but you'll most likely get slipped a few ticks if you're trying to catch price running.
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Personally I prefer limit orders. I want to enter the market on my terms or not at all, and I hate chasing.
I essentially trade 2 setups, one is reversal based and the other is momentum/continuation based. Even with the continuation trade, I still enter using a limit order (by entering before the break). If I miss the move, oh well there will be another one.
For me it comes down to defining my risk. Entering using a limit order means that im leaning on something behind my entry, therefore defining my stop based on the market structure. Entering at market may well increase the required stop to still have it based on market structure, which then negatively affects the R:R of the trade.
You donít trade the markets; you only trade your beliefs about the markets.
- Van K Tharp
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I significantly improved my discretionary trading when I started trading micro futures with bad liquidity. I did this to practice managing multi-contract positions and to hold on to runners long enough to capture as much of the day's range as possible, but I found an unexpected improvement.
Before then I was obsessed with limit order entries. What I learned was that this was messing up my judgment. It doesn't sound like @tderrick has the same problem, but what would happen to me is I would decide I want to be long or short and then drop a limit behind the market, trying to nickle and dime for a few ticks. I think I was really just avoiding putting trades on. I also found that I was sometimes dropping a limit order to shut off the need to continually watch the market. So the anxiety of deciding was so intense that I would just say, "this is my price," put the limit there, and not change my view based on anything that happened next. This is usually when I would get run over.
With crappy liquidity it was essential that when I decided I wanted to be long I actually got long immediately. And I also had to trade with mental stops, because the liquidity was so bad that a stop order triggered by the most recent executed trade price would sometimes result in massive slippage. So I got used to entering and exiting with market orders. I learned through experience that if I have an edge, it's an edge that can suffer giving away a few ticks on both ends of the trade. Now I trade like this: when I want to be long, I get long. When I no longer want to be long, I flatten a little bit and watch what happens next. If I decide I want to be completely flat, I close the rest, etc. Depending on what is going on, I might hit the inside bid or ask, join the inside bid or ask, or even use limit orders if I need a little pullback to get in at a price that allows me to be comfortable with my risk.
But my period of strict market orders really helped me. Market orders compelled me to be continually in tune with the market, and compressed my responsibility for my decisions down to a perfect point. A resting order always gives you the opportunity to disassociate from your decision to trade. (With full size contracts I still put a disaster stop in the market, or put a resting stop if an obvious inflection point develops - please don't be stupid!)
That being said, when I'm trading "setups," I use stop orders to enter and exit, or market on close/open to enter and exit, depending on whether it is a pattern trade or a daily bar swing trade.
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This is exactly how I view my entries - what you just stated.
I have so much screen time under my belt, I am virtually certain if a level will react with a bounce or not.
How far it bounces is up to the trading gods, but it is always worth trying for 2 points. It is then, the retest of
the same level that I will hold for the longer play .. ...
Either way, I know almost to the tick, the level at which I wish to enter the market.
Anything further " back into " PA , or the killing fields ALWAYS seems like chasing to me. By the time
you figure out that price has bounced, fumble around to find the appropriate button , you have easily lost
a point or two... That is close to my initial profit .
I just hate entering anywhere except the exact Price Seams I have laid out.
I suppose I am just not cut out to be a Break Out / Momentum trader.
Limit orders at SR for ever!! My price or nothin'
"Life On The Edge of SR"
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I could never trade like this in a million years ..
It is obviously the "correct" way to trade , however, I have a serious hangup with risk.
I don't know if it is because I was poor for most of my life, or what .. I need that exact price.. ..
This must be why I am such a horrendous trend trader .... It's like I'm in outer space with nothing to
base a decision on.... Now, if it's a classic stair step trend , like many start out, I'm fine .. I simply place
the limit order a little above / below the last SR level and I'm in .. But it is still a limit order at my price.
If it doesn't PB again ,in the classic sense, I don't care ... I will not chase the market.
... if price takes off hard, I'm doomed .... at least for now
How lovely it would be to have the courage to be certain the market is long , enter with a buy market,
place your stop behind the last major swing and let it ride..... I am simply not there yet .
I have learned to play small ball to gather my daily nuts by fading the edges of almost anything...
If it is a level with historic SR ... I'm there to fade it .
and obviously , I'm not the only one trading like this - Why else do they bounce?
Getting run over with tight stops, is part of the game... no worries
"Life On The Edge of SR"
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Platform: TradeStation execution, some Thinkorswim charting
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Entries variable, but always market for stops. This works because I trade liquid instruments, it wouldn't work well on light volume stocks/futures.
The bit of potential slippage on the stop is worth it, since everyone will get hit with black swans in their life, and a stop limit order could quite possibly kill your account depending on the size you have on.
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