💡 Using a Limit Order Only Trading Strategy to Maximise Profits 📈

Summary

This video explores a limit order-only trading strategy, ideal for traders unable to monitor the market constantly. It discusses the pros and cons of this approach, including the inability to adjust on the fly due to market volatility. The presenter suggests using daily charts to hypothesize future price action, structuring trades around expected outcomes, and employing time-based exit strategies to manage risk effectively. The strategy encourages traders to think critically about market patterns and trade duration without the need for constant screen time.

Takeaways

• 📈 Limit Order Strategy: The video discusses a trading strategy that relies solely on limit orders to enter trades without the need to be constantly in front of the screen.
• 🕒 Time Efficiency: One of the pros of using limit orders is that they allow traders to capitalize on trade ideas without being actively monitoring the market all day.
• 🔄 Risk of Fill: A downside of limit orders is that they will be filled at the specified price regardless of market conditions, which can be a risk if the price moves through the limit due to sudden news or events.
• 🛠 Strategy Adaptability: The video suggests that traders who are struggling with market timing might benefit from experimenting with a limit order strategy to see if it aligns better with their trading style.
• 📊 Hypothesis Formation: The strategy involves forming a hypothesis about what the market might do on a daily chart and then structuring trades based on that expectation.
• 🔄 Types of Limit Orders: The script explains two types of limit orders: stop entry orders for getting into the market at a certain level and standard limit orders for exiting or entering trades at specific prices.
• 📝 Trade Planning: It's important to plan trades based on expected price action, including setting entry points with limit orders and managing risk with stop-loss orders.
• ⏰ Time-Based Exits: The video emphasizes the importance of having a time-based exit strategy in addition to price-based targets to manage how long a trade is held open.
• 📉 Handling Breakouts: The script provides an example of how to structure trades during breakouts and failures, suggesting specific strategies for entering and exiting trades in these scenarios.
• 📝 Daily Chart Analysis: Traders are encouraged to analyze the daily chart to visualize potential price movements and structure limit orders that align with these expectations.
• 📲 Alerts and Timers: For traders not in front of the screen, setting alerts on a phone and using timers can help manage trades effectively, ensuring that entries and exits are executed according to the strategy.

Q & A

What is a limit order only trading strategy?

A limit order only trading strategy is a method where traders place orders to buy or sell at a specific price, without the need to constantly monitor the market. It is based on the idea that the trader can set their desired entry and exit points in advance and let the market meet those prices to execute the trade.

Why might a trader choose to use a limit order only strategy?

A trader might choose to use a limit order only strategy due to time constraints or the inability to be in front of the screen all day. It allows them to capitalize on trade ideas without needing to actively monitor the market for execution.

What are the pros and cons of using a limit order strategy?

Pros include not needing to be in front of the screen constantly and having the potential to execute trades based on predetermined prices. Cons include the risk of being filled at the limit price regardless of market conditions, which could be unfavorable if the price hits the limit due to sudden news or market movements.

What are the two types of limit orders mentioned in the script?

The two types of limit orders mentioned are stop entry orders, which are used to enter a trade when the price reaches a certain level, and standard limit orders, which are placed to buy or sell at a specific price and are executed only if the market price meets the limit price.

How can a trader use the previous day's price action to inform their limit order strategy?

A trader can analyze the previous day's price action, including patterns and trends, to form a hypothesis about what the next day's price action might look like. This can help in deciding where to place limit orders for entry and exit based on expected market behavior.

What is an 'inside day' in the context of trading?

An 'inside day' refers to a trading day where the price action is contained within the range of the previous day's price action. It suggests a period of consolidation and can be used to inform a trader's expectations for the next day's market movement.

How can a trader manage their risk when using a limit order strategy?

A trader can manage risk by setting stop-loss orders to limit potential losses if the trade goes against them. Additionally, they can use time-based exit strategies, such as setting alerts or timers to close the trade after a certain period if the market does not move as expected.

What is a 'breakout and fail' scenario in trading?

A 'breakout and fail' scenario occurs when the price breaks above or below a significant level (like a resistance or support level) but then fails to sustain the move and reverts back to the previous range. This can be a signal for potential reversals and can inform a limit order strategy.

How can a trader determine the duration of a trade when using a limit order strategy?

A trader can determine the duration of a trade by setting time-based exit strategies, such as setting a timer for when they expect the trade to complete based on market conditions or by using alerts that trigger when certain price levels are reached.

What is the importance of having a clear hypothesis about the market when using a limit order strategy?

Having a clear hypothesis about the market is important because it helps the trader to make informed decisions about where to place their limit orders. It allows them to anticipate market movements and structure their trades accordingly, increasing the likelihood of successful trades.

Can you provide an example of how a trader might structure a limit order based on their market hypothesis?

An example could be if a trader expects a heavy down day based on the previous day's price action. They might place a sell limit order just below the prior day's low, anticipating a test of that level. They would also set a stop-loss order to manage risk and potentially a time-based exit strategy to close the trade after a set period if the market does not behave as expected.

Outlines

00:00

🚀 Introduction to Limit Order Trading Strategy

This paragraph introduces the concept of a limit order-only trading strategy, which is a method that allows traders to place orders without needing to be actively monitoring the market. The speaker explains the benefits, such as not having to be in front of the screen all day, and the potential downsides, including the risk of being filled at a less favorable price if the market moves unexpectedly. The paragraph also encourages traders to experiment with this strategy, especially if they are struggling with their current trading methods. The key points include the types of limit orders, such as stop entry orders for getting into the market and standard limit orders for exiting. The speaker provides an example of how to use these orders based on the previous day's trading action and the expected market behavior for the current day.

05:01

📈 Developing a Limit Order Strategy Based on Market Expectations

The second paragraph delves into the process of developing a limit order strategy by reverse-engineering expectations of the market's intraday movements based on the higher time frame analysis. It emphasizes the importance of having a hypothesis about the market's behavior and structuring trades accordingly. The speaker discusses various scenarios, such as selling at the initial pop off the open or buying on a test of the highs, and illustrates how to set limit orders to enter trades and manage risk with stop-loss orders. The paragraph also touches on the importance of considering the time of day for placing orders and suggests setting alerts and timers for trade exits, aligning with the trader's expectations of how long the trade should run.

10:01

⏰ Implementing and Managing a Limit Order Strategy

The final paragraph focuses on the implementation and management of a limit order strategy. It stresses the importance of planning the trade thoroughly, including where to place the limit orders, when to expect to be filled, and where to set the stop-loss orders. The speaker advises on using tools like alerts and timers to manage trades without needing to be in front of the screen constantly. The paragraph concludes by emphasizing the need for traders to have a clear exit strategy, whether it's time-based or based on specific price levels, to ensure that the trades are closed out effectively and that risk is managed.

Keywords

💡Limit Order

A limit order is a type of financial order that allows a trader to buy or sell a security at a specific price or better. In the context of the video, limit orders are the central strategy for trading without the need to be constantly monitoring the market. The script discusses how limit orders can be used to enter the market at a desired price and how they can be set up to trigger trades without the trader's immediate attention.

💡Strategy

In the video, the term 'strategy' refers to a systematic approach to trading that is designed to achieve a specific outcome. The main theme revolves around developing a trading strategy that relies solely on limit orders, which can be executed without the trader being present to monitor the market in real-time.

💡Stop Entry Order

A stop entry order, as mentioned in the script, is a type of order that becomes a market order when a stock trades at a specified price, known as the stop price. It's used to enter a position in the market, typically used to open a long position if the price rises above a certain level, illustrating a continuation trade.

💡Price Action

Price action in trading refers to the movement of prices on a chart, which can be analyzed to make trading decisions. The video discusses using price action to hypothesize how the market might behave and to set up limit orders that align with these expectations, such as placing orders after observing a breakout or a test of a high or low.

💡Hypothesis

A hypothesis in the context of the video is a proposed explanation or prediction about how the market will behave. Traders are encouraged to form hypotheses about daily price movements based on the previous day's trading activity and then structure their limit orders to take advantage of anticipated price action.

💡Candlestick

Candlestick charts are a popular method of displaying price movements in financial markets. The script uses the term 'candlestick' to describe visual patterns on a chart that can help traders form hypotheses about future price action and to decide where to place their limit orders.

💡Breakout

A breakout in trading refers to the price of a security moving past a key level of resistance or support. The video discusses using breakouts as a signal for placing limit orders, expecting the price to continue in the direction of the breakout.

💡Inside Day

An inside day is a trading term referring to a day where the price range is contained within the previous day's price range. The script suggests using the concept of an inside day to predict and prepare for potential trading scenarios, such as setting limit orders based on the expectation of a consolidating market.

💡Stop Loss

A stop loss is an order placed with a broker to sell a security when it reaches a certain price. The video emphasizes the importance of attaching a stop loss to limit orders to manage risk, ensuring that if the market moves against the trader's position, the loss is limited.

💡Bracket Order

A bracket order is a combination of a limit order and a stop order placed simultaneously to open and close a position. The script mentions bracketing as a method to manage trades, allowing traders to set both entry and exit points for a trade, which can be particularly useful in a limit order only strategy.

💡Time-Based Exit Strategy

A time-based exit strategy involves closing a trade after a predetermined period, regardless of the market conditions. The video script suggests setting a timer to exit a trade after a certain duration, such as an hour, as part of a disciplined approach to limit order trading.

Highlights

Introduction to the concept of using a limit order only trading strategy.

Reasons for using limit orders, such as time constraints and not being able to monitor the screen all day.

Pros of limit order strategies, including not needing to be in front of the screen for trade execution.

Cons of limit orders, such as the inability to adjust strategy on the fly if the market moves unexpectedly.

Suggestion to experiment with limit order strategies if struggling with trading and not having a good market read.

Explanation of two types of limit orders: stop entry and standard limit orders.

How to deploy a limit order strategy by assessing the previous day's trade and formulating a hypothesis for the next day.

Importance of having a clear hypothesis about the expected daily chart pattern before placing limit orders.

Using the daily chart to reverse engineer expectations for intraday trading and structuring trades accordingly.

The concept of setting time-based exit strategies for trades, such as closing a trade after a certain period of time.

Techniques for managing risk with limit orders, including setting stop losses and using bracket orders.

The idea of setting alerts to notify when a trade is filled and then using a timer to manage the duration of the trade.

Discussion on the importance of recognizing how long to hold a trade when using a limit order strategy.

The role of visualizing the daily chart and aligning trade ideas with expected price action.

Strategies for placing limit orders based on expected opening moves and potential intraday patterns.

Using specific time frames for limit orders to manage the risk of entering or exiting trades at unfavorable times.

The process of paneling out trades, managing risk, and potentially developing a strategy that doesn't require constant screen time.

Transcripts

in this video guys let's explore how we

could use a limit order only trading

strategy stick around

hey traders welcome to thanks for

joining me alright so limit order own

strategy element order only strategy is

it possible to do it and how would we go

about building a strategy that works on

just limit orders first of all why would

you want to use just limit order so this

might be a time constraint thing not

everyone can sit in front of the screen

all day every day you don't always have

the opportunity to capitalize on those

trade ideas if you're not the screen but

limit order is resting in the market and

it's going to trigger if that price is

met so in theory you could kind of build

a strategy based around that now before

we kind of dig down this rabbit hole one

thing to point out maybe the pros and

cons of doing this pro obviously just

like i said you don't have to be in

front of the screen you can put those

limit orders in and you will find out

how you've been filled and what the

outcome of those trades when you do log

in

however the downside of that that sounds

good right because like i can get onto

other stuff that happens from the screen

great but the downside of that is you

are going to get filled at that level

no matter what because

the price is well you i say if the price

hits that level you will be filled no

matter what i mean by that is if

suddenly something comes out and news

just goes straight through the limit

you're going to be filled on that limit

if it comes and you actually what you're

probably hoping for is the market just

comes down kisses your limit and rallies

back up in the case of a long order so

you're not able to adjust your strategy

on the fly now that might seem like a

negative and the way it is because if

something crazy happens the market

changes phase and your position for that

that you know you might be out of sync

with the tumor stuff but

put it this way if you are at the moment

struggling with your trading

why not experiment with this and say hey

you know what i don't seem to have a

good read anyway i'm being frank i don't

seem to have a good read on what's going

on and i'm trying to adapt um so why

don't i go back to basics and use the

just limit order strategy and just see

what happens and just see what the

outcome is and so how could you deploy

this and what sort of thing would you do

so let me give an example

now obviously

um you've got two types of

two types of limits you've got to stop

entry which is about effectively air

it's not a limit order but it gets you

into the market it's assuming that

you're not in the trailer mode a stop

entry order says hey if the price goes

um above this level then get me long

here so it's a stop but it's an entry

order in so if it's a buy stop and

because you've got no position on it

will get you into the trade so that's a

continuation type trade another one

would be adjustable standard limit order

which we all know and love which would

sit there and let's say that's a 57

bucks you have a limit order of 57 bucks

price comes down trades through

357 bucks you're gonna get filled and

let's say this was 60 bucks here using a

kind of actual example if you've got a

stop buy stop entry order as price goes

up it would only trigger a long if it

traded at or through 60 bucks okay so

two ways of getting in at highs at lows

how would you use this and so one thing

you could do is you could say right i am

going to assess let's use an example

that you are want to trade one intraday

trade okay you want to pick one good

trade of the day and so you might look

at the pride days trade and let's say

the pride day

has done

this right and there is the close okay

imagine that's the close on the day and

you're like okay i'm going to now

try to come up with some kind of limit

order strategy based on that

two things you could do you might say

right hey i'm expecting the second day

to be a kind of inside day

and this really is the key is to have a

hypothesis of what you expect the day

how do you expect that day to look on a

daily chart so imagine your daily chart

might from a candlestick perspective

maybe it looks like that you're like

okay what's tomorrow look like am i

expecting it to be this you know why am

i expecting to be another doji am i

expecting it to be you know something

with a big tail for the downside i know

this is like easier said than done and

obviously if we do this it'll be easy

right trading is not it but i find that

when you kind of look at the bigger

picture on the daily chart and go what

what could the next look what would it

look like and and clues on that might be

hey if we've broken out and failed maybe

we're in for a big selling day today

maybe we're in for that kind of move

today or maybe we've broken out and now

we're stagnating and we're kind of in an

oscillatory range environment maybe we

all have an inside day so you you your

thesis and your prediction is based on

the chart pattern you're not just

guessing you're kind of thinking hey

what's built up so far what was the

price preceding price action how have we

got to this point what am i now

expecting and then from there you say

okay if i'm expecting let's say two

different types of candles how would i

position for those what would they look

like and how might they look intraday so

you're reverse engineering your

expectations in the higher time frame

intraday and you say right okay

i think that actually we may well

because let's say the prior day had

um kind of kind of done this right and

you've broken here and let's imagine

that hopefully you can just see that so

i'm just making this upload go along but

you get the point right let's imagine

that it's broken that high

and it ends up closing through the low

but sorry

breaking the low but closing just above

the low you might say ah you know what

this is

probably a trade that's going to put in

or close at lowe's i'm expecting this to

probably close at lowe's it might test

some high it's not kind of we'll break

out territory yet but as we've broken

through this high and failed and broke

through that low we've come back up but

i still think that maybe we're gonna

kind of put in something on these solid

red candles and again hypothesis

depending on what you're considering so

how would you do that you could say to

yourself right okay

i am going to look to sell an initial

pop off the open so you might end up

putting a limit order here let's say

halfway between the closing price and

the high as an example you might say hey

i'm going to sell through the lows so

i'm going to put a stop sell stop order

here to get me into the trade here you

might think hey we'll have one more test

of the highs and then we're going to

roll over so maybe put your limit order

in here the idea is okay who knows which

is the one you pick but the idea is is

that you're trying to

um

show

how you expect the candle to form with

your trade ideas so if you have the

expectation of hey i think we're in a

heavy down day you might have to just

sell through the prior low and put the

order in that sells through there and

then put an accompanying stop to manage

the risk on that if you think we're

gonna have an outside type day you might

want to say hey well i'll put a limit

order of the highs and i'll put a limit

order of the lows and maybe one cancels

the other out the point is you try to

structure the trade around what you

perceive may be the price action and

you're looking as well to the time of

day that price does stuff so if you have

an opening drive and you have a kind of

chopping environment maybe it sometimes

the price tends to move too high towards

the end of the day maybe it's coming

closing at lows how are you going to

position so you you can then go right

actually i'm going to put a limit order

in that that goes in and and is

cancelled uh by the first hour of the

trading day okay you can put that most

orders go in as a default of good till

cancel but some of them you can have

them

canceled at a specific time so you can

leave that limit order resting and kind

of say hey if we get this extension

above the high or above the low in the

first trading hour i want it i want to

get in but if it's kind of the end of

the day i don't want it and so this is a

way of being able to manage that that

feeling and that idea trade ideas like

hey you forget the extension get me an

if not cancel the order and you can also

you know play around with these

different things but the i think the key

here guys is to really think about how

the daily chart is is going to look

visualize that and say right and and yes

this is a skill you've got to develop

right so you're looking at charts saying

okay

yeah we could easily test that high

minus a breakout type thing now i want

to get long straight on this i want to

do short i want to do whatever it is and

then structure the limit around that

attach your stop loss to that limit so

that you are protected in some way and

the extra crucial part that i think is

very very crucial is to recognize how

long you want to hold that trade for

because limits all very well to get you

in and this will be effective at getting

you into the market the level you want

but how do you then get out of the trade

of the level you want one thing you

might have to do is set an alert that

gets fired to your phone if you're not

the screen says hey you're in the trade

and then set a timer and so often one

thing you can do is hey i've been filled

on that the alert comes through your

phone ding you've been filled great now

you go to your phone's time and you say

hey i expect and this is you aligning

with conditions that this is going to

run my direction for an hour for example

two hours three hours whatever it may be

set your timer and so

you're not looking at the chart per se

you know that the risk is taken care of

right you've got the limit in the stop

is in you've been filled the stop's in

that's taking care of that was done uh

before the trading day that's all set

you've now been filled you're in the

market you don't want to leave that just

randomly leave it and okay targets are

fine and i think bracketing is one thing

that's kind of a very simple thing to do

is to have a bracket and say hey i

expect this that's one way of doing it

but another way to do it is then set a

timer and say right after an hour i'm

going to close this trade because the

expectation of this trade is we are

testing highs and we're going to roll

over for an hour we might then retest

again but i want to take that out i want

to take it out so i'm either going to

come out an alert level that i set

that's maybe a midpoint or a v-wep or

whatever it is or i want to come out

after an hour so you've got that

time-based

exit strategy as well as potentially a

key level maybe a bracket order or maybe

an alert that says hey i want to come

out this price as well so

um limit order only strategy

re-engineering or reverse engineering

how that daily chart could look on the

high probability days that you think

you've got an edge on that how would

that look intraday where would be the

best place to structure that what time

would you want to get filled on that

where would you place the stop on that

how long would you expect the trade to

run for if it was working

work it all out panel out put your

rulers in

manage the risk

and then you've got a nice potentially a

nice little strategy you have to sit in

front of the screen all day long for

take care see you next time keeps

managed bye

you