Increase Swing Trading Profits with Limit Orders
Guide to Investing for the Swing Trader
Jun 7, 2009
According to the article, "How to Use Limit Orders to Your Advantage and Save $ Over Time" at My10000Dollars.com (a site by an accomplished swing trading expert), "the opportunities to gain more money by using limit orders are out there." Learn when to use, when not to use, and why to use limit orders in an overall swing trading strategy.
Avoid Market Orders When Swing Trading (most times)
Though swing trading is not day trading, the stock is still being held for a short period of time. The risk is still higher, compared to long term investors. For this reason, there is a larger incentive to be focused and disciplined. Unplanned market orders are often a result of emotional buying which can create more risk or create a loss of an opportunity.
Reasons to Avoid Market Orders:
- Indicates a lack of discipline
- Indicates a lack of planning
- Takes away the opportunity to buy during a small below-market fluctuation
Use Limit Orders to Save Money Over Time
Swing trading, by its nature, involves a lot of stock buying and selling. Therefore, saving a little bit of money during one trade can make a huge difference if repeated over and over. By taking advantage of small fluctuations in stock prices during swing trading, savings can be huge. Even though taking advantage of a fluctuation in stock price by capturing a stock two cents less using a limit order, compared to using a market order, may not seem like much, it ends up saving a lot when this is multiplied and added after many stock trades. To see an example of the savings potential read this guide to investing.
Swing Trading - When to Use Limit Orders
An ideal situation to use limit orders is when a stock is in an intra-day consolidation stage and moving tightly up and down. In this case, there is a higher probability to gain from the benefits of these slight changes in stock prices. During these type of orders, patience and discipline will most often result in a better buy.
Swing Trading - When Not to Use Limit Orders
When a stock is moving up or down quickly, limit orders can be left behind. Therefore, if there is good reason to make a move, and making a move follows the larger strategy, then using a market order would be best. If the trending is right, and the homework has been done, then a market trade would be the best move.
Therefore, prior to placing the next market order, think of the situation, the plan, and whether or not a limit order would be best used.
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