💡 Using a Limit Order Only Trading Strategy to Maximise Profits 📈
Summary
TLDRThis 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
🚀 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.
📈 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.
⏰ 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.
Mindmap
Keywords
💡Limit Order
💡Strategy
💡Stop Entry Order
💡Price Action
💡Hypothesis
💡Candlestick
💡Breakout
💡Inside Day
💡Stop Loss
💡Bracket Order
💡Time-Based Exit Strategy
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
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