Chapter 28
Entering on Limits
Experienced traders will enter with stop or limit orders, depending on the situation. When the market is in a strong trend, entering on stops is a reasonable approach. When it is in more of a channel, they will be more inclined to look to enter on limit orders. For example, if there is a strong bull spike, traders will enter on stops above bars and at the market around the tops of bars. Once the market converts into its channel phase, it is still in a bull trend, but now the trend is weaker, and it can end at any time and test down to the bottom of the channel. Early on, traders will still look to enter on stops on high 1 and high 2 buy signals. After the channel has gone on for a while (maybe 10 or more bars), many experienced traders will switch to entering on limit orders at and below the low of the prior bar instead of on stop orders above the high of the prior bar. Once the channel goes on for a long time (maybe 20 bars) and approaches resistance areas, traders will stop looking to buy and will instead begin to sell at and above the high of the prior bar on limit orders. They will sell to take profits on longs, and some will scale into shorts. Once there is a bear breakout, the process begins in reverse. If the bear trend is strong, they will sell on stops below bars, but if the bear leg is weak, experienced traders will not short on stops near the low. Instead, they will prefer to short on stops on pullbacks, like below low 1 or low 2 setups ...
