While understanding the definition of limit order is good, true understanding comes with application of a theory or method. Many times theory is just not enough in the learning process. It’s best to go through scenarios and situation.. So many trading situations exist. To say a one should always use a limit order is foolish. You must consider the situation from all angles. The psychological conditions you experience during stock trading is extreme. Your work flow as a trader must be efficient.
Buy and Sell With Conviction
When You need to Sell —Get Out Immediately: When you get a signal to sell or buy, timing is of essence. Waiting for your order to get filled is ok. Waiting too long can be fatal. Striking the balance is an art. As a stock trader this comes with time and experience. Persistent study of the markets are necessary. Most of all, real hands experience.
Limit Orders Have Weaknesses
So many guys swear by the limit order. Remember getting your order filled is NOT GUARANTEED. This is a huge weakness that so many traders are unaware about. In fast moving markets your order will not get filled if you lack precision. Depending on market situation, stock volume, volatility, and other things a limit order can be a weakness. You might as well just use a market order. Understand the stock market conditions, and order flow. Become familiar with the weaknesses and accommodate with other techniques.
Fumbling With Your Platform
During intense moments in the market, the familiarity of your platform will make or break you. You must be ready to pull the trigger on the fly. On some platforms, you have to manually type the price to change it. On other stock trading platforms, you can simply move an indicator line on the stock chart to make changes. Use a platform that makes sense to you. All the extras do help during moving markets. Today’s mobile technology has make the markets even faster. Learn to embrace the new technology.
Know When To Use A Market Order
There are times when you have to ditch a position and there’s not enough time. You just get out at market price. During a falling market if you have an open position to hedge with an opposing security. You need to get in a position asap to offset losses. Position size is a factor. Again, this is just but one scenario. There are thousands of others. The rules of what types of orders to use in certain situations are fluid. It really is entirely up to the stock trader to weigh his option wisely. Read more information of market orders and conditional orders.
Getting It right the First Time
Setting that limit order is actually a skill that needs practice. Going through a few hundred stock charts a day is normal for any active trader. The more you are exposed to charts, the better you will get. Getting to the point of flawless execution will take time. The more trades you make, the more experience you get. You can’t replace doing hard time experience with textbooks. At some point, you have to merge the two. Remember, paper trading isn’t the same thing. Liquidity issues are not reflected in execution performance when you are using a practice account or trading simulator.