Buying limits

I rarely buy limit, because I have no idea where the price will turn if at all and where to place a stop. Also, buying mid bar has the risk that the bar may end up quite differently than you imagined. Sometimes however, there are compelling reasons to enter on limit. The principal reason for me is a hard value at which I believe buyers will come in. This allows me to enter at a precise price as opposed to eyeballing the chart for an entry and secondly, a precise stop, making it quite like entering on stops above a signal bar. Today presented some of those occasions.

The first condition for me to enter on limit is that there must be an overshoot. This will ensure that even if I'm wrong and the bar moves 4 or 5 ticks against me, there is some chance the market will withdraw and allow me to exit at breakeven.

The second condition is a price point below me where buyers will be compelled to enter for example because its low of a major reversal or first touch of ema after 20 bars.

The third condition is that the sell from which the move originated must be from a poor signal.

For example, the market presented a first reversal at b7 but forced a buy above a big flag forcing a stop of over 2 points. Although the entry bar b8 was strong, there was a good chance its low would be taken out. when b9 presented a poor sell signal (again due to overlap), an order to buy the low of the entry bar b8 becomes viable. The overshoot of b7 and the ema and b7 low are compelling reasons to buy and becomes a reasonable alternative to buying above the first pullback above b11. Note that when you buy above b11, the first pullback is real but when you were buying the low of b8, the first pullback only exists in your hopes.

A second example is buying a tick above the low of b19 when the market made a 2 legged approach to the ema at b26. Here there were a host of reasons to buy such as: the overshoot of the bear pullback trendline, more than 20 gap bars from a rising ema, a bull trend line, etc. Even conservative traders probably bought this on limit. The low of b19 is likely to be bought, given the move was so strong and the low or a tick above it is a good entry price.

For those who passed up the limit trade, the technical entry forced a buy above b26 but some traders would buy above b27 and the entry bar b28 was likely to fail. The overlap and breakout below bull bar b30 was likely to fail, so a limit buy at b28 low with stop below b27 was a good entry.

Today there was a late trend breakout to the downside that occurred after 4 failed attempts to breakout. The L4 below b42 was a typical double trap. b43 ticked below b42 trapping bears in, ticked above trapping them out and trapping bulls in and then broke below making b43 both a W and W1P and a DT and a DP.

There were 2 large bars down followed by an A2 and due to the size of b45, there was some chance of buying below it, so an exit at the low of b45 was probably warranted.