The Advantage of Trading with Limit Orders
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#463: The Advantage of Trading with Limit Orders
In this video:
00:27 – I love trading with Limit Orders
01:01 – They help to remove the emotion from my trading
02:48 – Examples of why I use Limit Orders
04:39 – Have a look at Blueberry Markets
05:39 – Start using Limit Orders for high Reward:Risk trades
As a trader, what are the advantages of using limit orders, and why do I use them so much in my trading? Let’s talk about that and more right now.
Hey traders, it’s Andrew Mitchem here at the First Trading Coach with video and podcast number 463.
I love trading with Limit Orders
Now I make no secret about it. I love using limit orders. I’ve used them for years and years. Been trading for 18 years, and probably around the last 15 years, ever since I discovered the power of using limit orders and how to use them properly within our strategy, they have made a massive, massive difference to my trading results. One of the reasons why I like using them is because you will pretty much always get a higher reward to risk than you would by entering, let’s say, at the market or a stop order. And I’ll explain with some examples shortly.
They help to remove the emotion from my trading
But I also like them because it helps take the emotion out of my trading, because I trade on the close of a candle. If I’m not there at exactly the close, it doesn’t matter, because on my trades, I’m looking for, let’s say, on a buy trade, I’m using a buy limit. So that means I’m buying when the price first drops. So if I’m not there, panicking and stressing about taking a market order and working out my correct position size and where my stop loss needs to be, and oh no, the market’s moved up, and I’ve missed out. I don’t do any of that because I see the setup, and then I can quite easily analyse where my entry using my buy limit needs to be, and my stop, my profit, work out the stop loss size, work out my position size, and it all takes literally… I use a script that does it all for me. But you can even manually do that in about 30 seconds.
And then you’re taking the trade based on a sound decision rather than an emotional reaction. I’ve got to get in. I’ve got to get in. So a lot of advantages there in terms of the actual practicality of your trading, but also the results, because your reward to risk will be so much better. Now, if you’re taking a buy limit and the price does not fill that limit and it just takes off in your anticipated direction, but without first filling the trade, that’s fine. You just miss the trade. You don’t gain anything, but you also don’t lose anything out of the trade.
And of course you can split your position like I do on my daily charts and my weekly monthly charts by taking part of my order at the market and part of it retracement. If I’m trading shorter timeframe charts, like 12 hours down to two hours, I take only limit orders because the amount that the price needs to move to get back to a limit order and fill it is less. So I love limit orders.
Examples of why I use Limit Orders
Now, as an example, if you took a market order trade with a 100 pip profit target and a 60 pip stop loss, that gives you a 1.6-to-one reward-to-risk trade. It’s an okay trade, and it’s going to give you a pretty good, reasonable reward to risk. Not massive, but okay.
You take the exact same trade, and you use a buy stop order, so that means to buy above the current price, the same profit target, the same stop loss, and let’s say instead of 100 pip profit target, 60 pip stop, you entered 20 pips above. That means you’re now getting an 80 pip profit target for an 80 pip stop loss. All of a sudden you’ve reduced your reward-to-risk to only a one-to-one reward-to-risk. However, using the way that I trade, you’re using a limit order. So now you’re going to buy if the price drops 20 pips from its current position. You’re not there waiting for it. You just put the limit order on and leave the trade. So now using the exact profit target, exact same stop loss, you now have yourself a 120 pip profit target for only a 40 pip stop loss.
And that means now, if your profit target gets hit … Don’t forget: The stop and the profit are identical. It’s just where you enter. You now get yourself a three-to-one reward-to-risk trade. So we’ve gone from a stop order of a one-to-one, a market order of a 1.6-to-one, to a limit order, to a massive three-to-one reward-to-risk. You can see the enormous change that that makes in your trading results. So I highly recommend that you consider using limit orders within your trading.
Have a look at Blueberry Markets
Now, if you’re looking at somewhere to trade, another high recommendation I can give you is, and all through my own knowledge and experience and what I see other people doing, is Blueberry Markets, a fantastic broker.
I’ve got to say that their MT5 platform is my preferred option now. For years and years, I was stuck on MT4, and only because I think it was really good platform with the way that we use it and our software that integrates with it. But MT5, I’ve got to say, in terms of the ability to easily analyse a lot more different timeframes, plus at Blueberry they give you a huge amount of instruments, different markets, non forex markets, plus more Forex pairs in terms of some exotic and minor pairs as well. But also, yeah, the way that you can nitrate the cryptos, the commodities, the indices. And we’ve been doing a lot of that recently, whereas the forex market’s been a little bit quieter. We’ve been trading a lot of more metals and some indices and selling the cryptos as they’ve been dropping as well. Doing well out of those. So I hope that helps.
Start using Limit Orders for high Reward:Risk trades
Give yourself some time to go and research into the benefits of using limit orders. Like I said, from my years of trading and knowledge and experience, I can highly recommend you use them. High reward-to-risk trades. Without doubt one of the most important things you can add to your strategy to make your overall profitability go from maybe just sort of break even, slight gain to some pretty substantial gains. I hope that helps. This is Andrew Mitchem here at the First Training Coach. I’ll see you this time next week. Bye for now.