How I play with limit orders?? Continued:
I have written an article about using limit orders while entering a trade a couple of days back and this one is a continuation of the previous article. If you missed it, please find it here.
As a quick recap, let me state a few advantages of using limit orders.
As the entry is almost at the tops and bottoms, the initial risk is exceptionally low. Not more than 3-5 points of NIFTY if entry is timed perfectly.
Availability of plenty of retail entry levels to scale out the position. Scaling out removes a lot of emotional decisions out of trading and that’s why I love it.
A fantastic risk to reward.
Availability of space and time to scratch the trade for a small profit or at least breakeven when the market proves that the trade is wrong.
No chance of slippage at entry.
There are more, but these five are the reasons which pulled me towards limit entries. Now I realize that the limit entries suit my personality better than the breakout entries.
I request you to please read the previous article multiple times including the comment section until the procedure gets into your skin. Let’s look at a few examples from my trade journal.
As these are taken from hindsight, it looks very easy while reading, but trust me, the reality looks drastically different. As I use market depth window to decide the exact price of the limit order, it is hard to explain in a static medium like this. But I try my best to project my thoughts. Let’s start it.
limit entry explanation 1
Price was trading in a sideways range and hence my concern will be at the range boundaries. Now, look at the area circled in blue. Let us assume that the market is approaching the range resistance from point B and C is yet to form.
The price quickly got rejected after breaking the resistance at A. The depth AB is greater than the previous depth which is clear from the LTF. These are not signs of bull strength. So according to the third rule, absence of strength at the range boundaries says that the range boundaries gonna hold. So, my bias during the formation of C is to the downside.
The range resistance zone is the price level I am interested in.
In the LTF chart at point C, price got rejected from the highs. As the rejection is not that clear with respect to the range of the LTF candle at C, I waited for one more LTF candle and price hadn’t made any attempt to break the rejection and I worked a limit order entry in the next LTF candle. The stop was just above C, which is 2 points away from my entry.
limit entry explanation 2
Overextended swing, at the range resistance with decreasing candle ranges. Clear signs of bull weakness while approaching the range resistance and my bias is to the downside according to the third rule.
Clear evidence of rejection from the resistance in the TTF at point 1.
Extra evidence of weakness while retesting the rejection from LTF which gave more confidence to work an entry at the bottom extreme of the resistance zone.
Worked a limit entry around the rejection high with a stop just above that high which was 2 points away from my entry.
Now, look at the 4th and 5th trades in the following charts to know my exact limit entries in the above two examples and my trade management.
Hope this gives you an idea about my thought process while trying to pick tops and bottoms and feel free to post your queries/views in the comment section and I try to respond to them without fail.
Happy limit entries