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Hi Everyone,
How do you decide when to enter a trade using a stop order versus a limit order? The market is constantly probing up and down, and I'm trying to better understand how you assess whether a probe will go further or fall short. Specifically, when do you believe a breakout beyond the last bar will be successful, prompting you to enter with a stop order? Conversely, when do you think a breakout might fail, leading you to sell with a limit order at the high of the last bar?
Personally, here are some factors I pay attention to:
- Gaps between price bars and the 20EMA.
- Gaps created after a breakout and whether the gap closes or stays open.
- Gaps up and down on every bar between the close of the last bar and the open of the new bar.
- Whether bulls and bears are making money (usually around 6 points from either direction).
Yet, I still struggle to consistently gauge when to use a limit order versus a stop order. For example, today was a bearish day, and I took 8 scalp trades (all short). I barely made money because I entered using stop orders on my trades, thinking it was a strong trend day. However, the market kept pausing after every red bar with a green bar, and I had to get out at break-even because one of my rules for scalping is to exit at break-even if the entry bar closes with a color opposite to my trade direction. Had I entered with a limit order, I would have made money on all 8 trades.
On the other hand, on other trend days, I do well by entering using stop orders, and if fact if on those days I try to enter with Limit orders I won't get filled all day, so I can't figure out what details I'm missing.
How do you gauge the difference between trends to determine which are strong enough to use stop orders and which should be traded with limit orders?
Thanks in advance for your insights!
On the initial breakout, I rarely use stop orders. In my experience stop orders nearly always get triggered in strong trends, so there's no point to use stop orders. I enter at the market on the close of every strong trend bar. I also rarely go for anything less than 1:1, so I'm less inclined to exit on small pullbacks like is usually required for 2:1 scalps. But the later in the trend I enter, the faster I'll tend to exit due to the risk of a climax and larger reversal. I don't have much experience with limit orders yet. Typically I reserve those for trading ranges where it's too tight to enter on a stop.
That's an interesting point, @Kevin, thank you for sharing... Honestly, I feel it's time for me to start learning how to scale in the way Al teaches. He says it in the Scalping videos that most successful scalpers scale in.... It's a bit daunting for me because, in the past before learning Price Action, I used to scale in, and some of my biggest losses came from trades where I kept scaling in, hoping the market would turn around, but it never did. I'd love to hear what others think about this approach
No problem. Also, from what I can tell, its very difficult to know if the next bar after a breakout is going to continue to have follow through regardless of how good the signal bar looks. The better the context, the higher the chance.
Things I pay attention to in a bull are:
- Small overlap on prior bars
- Closes near high
- No resistance nearby (measured moves, trendlines, price levels, etc..)
- Not late in the trend, ideally not in a third leg up
- Reasonable to expect higher prices, for example breaking out of a wedge bottom with a follow through bar.
- Signal bar isn't extremely large compared to the rest of the chart. Those often are climactic and pause or pullback before continuing.
I'm sure there's more I'm forgetting.
I agree with the other Kevin. I almost never enter with stop orders either. Very rarely. I find they get you in the market at the worst possible price. They're also so fiddly to set up and get into the right place.
Even after an obvious stop entry triggers or a signal bar forms it almost always pulls back a bit to get you in at a better price with limit order. If it doesn't I get in with a market order later with higher probability.
Today on bar 20 I sold at the market as soon as the bar closed expecting the HOD. I did not bother with a stop order. I sold more at the market when bar 21 broke below 20 and kept adding to the position at the market on the way down. Not gonna waste time getting stop orders under the bars etc it's so fiddly and I don't think it adds anything.
It's different on a reversal because the theory is the other side are going to stop themselves out there so you're entering with stops at the same place where the other side are exiting with stops.
On the End of day charts on the blog it says all the entries shown are stop orders. I would never take 90% of those entries with stop orders I would use market or limit orders and I would much rather buy a bear bar at the market to get in on a pullback than buy above a bull bar with a stop entry at the worst possible price, if I can't get a pullback like Kevin said just get in at the market.... But perhaps this all comes from experience.
Going back years ago, the bar sizes on ES were 1-2 points. And you'd be scalping for 1 point. When it's like that I think stop orders are more important because every tick was is precious.
@Kevvy ,
Thanks, Kevvy, I totally agree with what you're saying! Like the other Kevin mentioned, stop orders can sometimes get you in at the worst possible price. After reading your posts, I’m going to start using limit orders more often as I feel more comfortable with them and usually get a much better fill that way.
