#11: What is a buy limit order
What is a buy limit order
A Buy Limit Order is an order placed below the current market price.
That order will only trigger if the price were to reach that level.
The exact opposite is a Sell Limit Order.
You might be wondering:
“How does a Buy Limit Order work?”
Let’s say you want to go long on EUR/USD.
The exchange rate is now 1.1234.
But you think that you can get in at a lower price later.
So, what do you do?
You’ll set a Buy Limit Order at a price lower than 1.1234.
Take for example 1.1200.
The Buy Limit Order will be triggered if EUR/USD reaches 1.1200 or lower.
For instance, Facebook’s share price is $1,000.
But you think it’s too expensive to buy them now.
So you’ll set a Buy Limit Order at $990 and be in the trade when share price dips a little.
Fairly simple, right?
Why you should use a buy limit order
When you use a Buy Limit Order, you make your trading easier.
You’re able to buy in at a cheaper and precise price
And you’ll be guaranteed to pay for that price or less.
If market gaps below the Buy Limit Order…
You’ll buy in at an even cheaper price!
Improvement in your trading psychology
You’ll realise trading is mostly about being patient and waiting for the right setups.
What’s a better way to stay patient than to use a Buy Limit Order, right?
By letting price come to the level you want, you’ll achieve:
- Better risk to reward
- Prevent yourself from chasing the market
- Makes you a more patient and less emotional trader
- Possibly reducing the chances of busting your account
The downside of using a buy limit order
Let’s face it, the Buy Limit Order isn’t foolproof.
And here’s the thing…
A Buy Limit Order is not guaranteed to be filled.
The market might not pullback lower to hit your Buy Limit Order.
So what happens next?
You’ll potentially miss out on trades that bring you huge bucks.
Or you might even forget about the Buy Limit Order you’ve placed.
A simple way to use buy limit order to ride the trend
You’ll want to use the Buy Limit Order to enter on pullbacks in an uptrend.
I’ve broken it down into these few steps for you:
- Identify an uptrend
- Wait for a breakout of resistance
- Place the Buy Limit Order near that resistance turned support
Step 1: Identify an uptrend
You’ll want to notice the price making higher highs and higher lows.
Step 2: Wait for a breakout of resistance
Once price breaks out of resistance, you don’t want to jump straight into the trade.
You’ll end up buying at the highest price with lousy risk to reward.
Instead, you’ll want to:
Step 3: Place the Buy Limit Order near that resistance turned support
Let the market come to you instead.
You’ll be better off with a more favourable risk to reward.
This is only one of the many ways to trade the trend.
If you want to learn more, check out The Trend Trading Strategy Guide.