I think there is too much and not enough discussion of order entry. I can and have talked about the mechanics of entering a buy or sell order with limits, stops, or at the market. Mechanics and definitions don’t do the art of order entry enough justice because they make it seem flat and lifeless. In reality order entry is dynamic.
I have seen over the years that most traders use market orders. This is the “get me in” or “get me out” now order. A market order in the wrong hands and if overused is not unlike the lever on the slot machine in Las Vegas. It’s the impulse buy while checking out at the grocery store. The psychology behind the most common use of market orders is little planning and even less trade and risk management. Now I am not saying that all market orders are somehow misguided, but it’s usually only very skilled and disciplined traders that should use this order type with any frequency.
If a trade is planned ahead of time, before price triggers an entry, then it should be logical that if the trade is preconfirmed a few orders can be “parked” in the market. When I say “parked,” I am referring to pending orders such as limits and stops. These orders can be placed well ahead of time and handle the trade entry, risk-based stop loss, and initial profit target.
I don’t think at this point we need another discussion of what stop, limit, and market orders are. I think the main issue is why and how we place these orders. In fact, it’s really more about the job each one of these orders has. We only have three order types, but which we use has more to do with how we want to communicate our wishes to the market.
I have seen over the years that most traders use market orders. This is the “get me in” or “get me out” now order. A market order in the wrong hands and if overused is not unlike the lever on the slot machine in Las Vegas. It’s the impulse buy while checking out at the grocery store. The psychology behind the most common use of market orders is little planning and even less trade and risk management. Now I am not saying that all market orders are somehow misguided, but it’s usually only very skilled and disciplined traders that should use this order type with any frequency.
If a trade is planned ahead of time, before price triggers an entry, then it should be logical that if the trade is preconfirmed a few orders can be “parked” in the market. When I say “parked,” I am referring to pending orders such as limits and stops. These orders can be placed well ahead of time and handle the trade entry, risk-based stop loss, and initial profit target.
I don’t think at this point we need another discussion of what stop, limit, and market orders are. I think the main issue is why and how we place these orders. In fact, it’s really more about the job each one of these orders has. We only have three order types, but which we use has more to do with how we want to communicate our wishes to the market.
