The support forum is built with (1) General and FAQ forums for common trading queries received from aspiring and experienced traders, and (2) forums for course video topics. How to Trade Price Action and How to Trade Forex Price Action videos are consolidated into common forums.
Brooks Trading Course social media communities
I've been trying to understand the difference. The software I'm using, 3Commas, has the option of a Limit Order, Market Order, and Conditional Order.
Limit Order I gather means that it only buys at the specified price, thus avoiding slippage. Conditional Order means that it places either a Limit Order or Market Order when a price is reached, so really the same thing.
There is no Stop Order. There is a Stop Loss.
So Al is using these terms differently I guess.
For example, I totally fail to understand when he says that stop orders are bad in a TTR, because it's a limit order market.
Does that mean that you want to avoid slippage in a TTR and so market orders are bad?
I really don't get it.
For example, on Slide 5 Al says that experienced traders will buy with market orders in a bull trend on the way up, or with limit orders on PBs betting the reversal will fail.
Does that mean that they want to buy at the exact price and avoid slippage?
But wouldn't you want slippage downward so that your order is filled at a lower price if you're betting the price will go up?
It seems to go against what I understood about limit and market orders, namely, that if you're betting that the market is going up then you don't want slippage upwards, but you'd want slippage downward, because you want to pay a lower price.
Hi Tom,
I would suggest you mull over the following order definitions below. If wanting to buy, for example, a stop order is always at same or higher price. A limit order is always at same or lower price. Reverse for selling.
Confusion arises for some, I think, cos once you are long, having bought, you then need to sell to go flat. So a stop is below current price, limit order above.
Market order - an instruction to trade at the best price currently available. This would be paying the bid/ask spread. Just get me into market now!
Limit order - an instruction to trade at the best price available, but only if no worse than limit price specified by trader.
Stop order - Traders attach stop instructions to an order when they want to buy only after price rises to the stop price, or sell only after price falls to the stop price.
These basic orders are combined to further confuse us!
Info from an excellent book that has so much useful trading stuff inside. Highly recommended:
"Trading & Exchanges: Market Microstructure for Practitioners" by Larry Harris.
Hi Tom,
Regarding orders:
Limit orders will fill at your requested price or better. So you can have "slippage downward" if you place a buy limit.
Stop orders are what your software seems to be calling conditional orders: once the stop price is reached, the software will place a market or limit order.
> Conditional Order means that it places either a Limit Order or Market Order when a price is reached, so really the same thing.
These aren't the same. A buy limit can only be placed below the current price. A buy stop can only be placed above the current price. Also stop orders and stop limit orders have different use cases.
>For example, I totally fail to understand when he says that stop orders are bad in a TTR, because it's a limit order market.
If you're buying above bars or selling below bars with a stop in a TTR, you're profit potential is not going to justify your risk. The only way for a scalper to profit in a TTR is buying at the lows or selling at the highs of bars, using limit orders.
> But wouldn't you want slippage downward so that your order is filled at a lower price if you're betting the price will go up?
If a trader is buying a bull breakout using a market order, that's because it's more important for them to get in immediately than to get in at a better price. They think if they wait for a pullback they might miss out on the trade, so they decide to "buy on close" with a market order.
A buy limit can only be placed below the current price
I see, so that's why when it's a bull trend and you want to buy above the high of the current bar, and you don't want to use a market order, you have to use a stop order.
Stop orders are what your software seems to be calling conditional orders: once the stop price is reached, the software will place a market or limit order.
That would make more sense. So then in the case of a bull trend it would be a Conditional Market Order according to my software, as it would merely place a Limit Order and then wait for the price to start going back down again and presumably we don't want that, we just want to enter asap, unless we want to buy the PB. Making more sense now.
"Trading & Exchanges: Market Microstructure for Practitioners" by Larry Harris.
Thanks, that looks really useful, I'll check it out.
Folks, I've read the above, and still struggle to understand when best to use a "buy stop" and a "limit" or even what the main differences are. When I am trading, If I want to buy X security at X price (ex. XYZ @ $40/share) and it is currently at $38, if I place a "buy, limit order" at $40, then if XYZ hits 40, my fill will be $40 (pending liquidity), is that not correct? If I place a buy stop order (@ $40, is not my fill still trigged at $40 and I will then be filled at the best market price if $40 is missed). Therefore, is the only difference that a stop order turns to market (guaranteed fill), vs a limit which is more "ify."
In watching Al's videos on orders, I don't see why a trader would use "stop orders" and not "market orders" when buying. Is this because the trader has a "pre-set" price in mind, is "anticipating" that price action will hit that stop order target? But why not just watch price action unfold then enter when desired with a market order?
The same applies when selling, as Al references TRs with limits, but again, why "guess" by setting a limit (ex, top of a TR/resistance), why not just enter (even in a higher time-frame) on market, as you watch price action unfold? Am I missing something? I notice the end of the day reviews always point out where the limit buyers/sellers are and is that because firms "pre-set" price targets regardless of how market/price action movement?
Just trying to piece things together here. Thank you. I may post in another forum as well.
In watching Al's videos on orders, I don't see why a trader would use "stop orders" and not "market orders" when buying. Is this because the trader has a "pre-set" price in mind, is "anticipating" that price action will hit that stop order target? But why not just watch price action unfold then enter when desired with a market order?
The same applies when selling, as Al references TRs with limits, but again, why "guess" by setting a limit (ex, top of a TR/resistance), why not just enter (even in a higher time-frame) on market, as you watch price action unfold? Am I missing something? I notice the end of the day reviews always point out where the limit buyers/sellers are and is that because firms "pre-set" price targets regardless of how market/price action movement?
Yes, you could use market orders in both cases, but there are some drawbacks.
In the first case suppose the market is breaking out and you want to enter on market instead of on stop. You'd now have to press your order entry key exactly as the market is breaking out, which means you are introducing a lag and you'd get a worse fill. If you placed a stop entry order, then the order would be with the broker and it'd trigger as soon as the market reaches that price level, a lot earlier than when that information reaches you and you react.
Sometimes you might even jump the gun, ie, the market hasn't actually broken out, but your finger was hovering over your hotkey in anticipation, and you inadvertently pressed it... you really don't want that.
It's the same for entering with limit orders in a TR. Yes, you could enter on market, but you'd get a worse fill, and you'd be late in a scalp where all you have is probably 1 or two points on the table. Sometimes however you might get a better fill, if the market kept going down near the bottom of a TR for example and had gone down a tick or more by the time you executed your order. But you cannot rely upon that. In general you'll have to assume you;d get worse fill.
These considerations don't matter if you're trading one MES. But execution is a very big concern when you're trading 100 ES contracts, or even 10.
These are not a concern with BTC and STC trends. The market is running away from you and you want in. You don't have time to faff about with placing orders. Just buy or sell on the market.
So PB, basically, if I understand you correctly, using a stop/limit in this way is 'anticipatory' in nature. However, it comes with 'increased' risk, as price could push higher/lower or reverse quickly. Is this why for example, at the top of a MM target, I could set a sell stop order (or would it be a limit?- still confused), and perhaps price hits for a brief moment (the upper wick of the candle would touch, reverse), but I would still get the fill? Whereas, I wouldn't react fast enough in a market order to get that upper fill, even on a lower timeframe (30 sec chart?). Thanks.
