By using a limit order we can save money of slippage, getting the best price possible. At the same time, we want execution to be as fast as possible In this part of the tutorial we take a closer look at selecting the best optimal price. Understanding technical analysis concepts crucial for setting a price that will get filled. If you can identify support and resistance levels, you can spot the zone where all the trading action happens. It’s this zone where your order will most likely get filled. Some traders think they can skip this aspect. However you will find them in frustration as their order sits unfilled for hours. Other times they’ll place a trade during a breakout, and completely missing the run, because their limit price was way out of the zone. It’s is during these trading moments that you use prudent and proven methods.
Find Sell Limit Order Price With Technical Analysis
The stock chart displayed is Apple stock on Jan 24, 2013. After some time Apple has made an amazing run but showed signs of weakness when it broke below a major support level the price gap down at a the open and a technical decision to sell.
Before we carry on. Can you spot the limit order price you would place when selling today?
We want to find a zone where the stock will most likely be trading. This zone is usually identified by a trading range. Usually pinpointing a high price and low price. Be sure to reference the chart to set your price. When learning to trade stocks, it’s important to play out scenarios. Scan a few hundred charts a day, and you’ll begin to automatically see trading opportunities.
As you can see at the beginning of the trading session, the stock was trending lower after the opening gap down. Then if you look below, there is a spike in stock volume with a trend change. We can identify this as the low price of $464. In the next few minutes the price action spikes and reverses. We can identify this as the high price of $468. We now have both components to strategically place a sell limit order. We should set the limit price between $464 and $468. Because we are selling, we want the highest price possible. So you want to set your limit order closer to $468. As the trading day progressed you can see that if you set your pricea above $468 you might have still gotten filled. Notice the wedge chart pattern, it’s a powerful pattern to trade. Viewing it from candlestick chart analysis, you can see a the candle wick spike at the end of the top resistance line. Some traders at that level know how to get max pricing for their trades by tweaking the price. That’s best left for another discussion.
Thoughts on Limit Orders
It should be emphasized the using a limit order is not a single component of stock trading. Many other concepts are incorporated to give the trader a deeper understanding of directional price movement. Reading stock charts from a technical standpoint should be incorporated in your strategy. Some of these topics include, stock volume analyis, candlestick indicators, moving averages, support and resistance levels, and trendlines. By no means is this list complete. Using a conditional orders can work to your advantage if understood properly. You will always save money when using a conditional order. Be sure to understand other types of orders, and have these tools at your disposal.