Limit Orders: Everything You Need To Know

Getting started trading the financial markets? You’ll need to understand how to use limit orders to manage your buying and selling.

Luckily, they’re not so complicated, but it does help to know how to set up a limit order.

So if you’re ready to get trading crypto, stocks or forex, check out this super quick guide with everything you need to know about limit orders.

What is a Limit Order?

Rather than buy or sell an asset at the current market price a limit order simply allows you to set a preferred buy or sell that ties in with your analysis of the market. 

This means you don’t have to sit watching the market for hours on end waiting for price to reach your level; you can simply set the desired level and carry on with the rest of your day.

Where a buy order is concerned once price reaches your buy or lower then it will be triggered and you will own a position in that asset. 

Where a sell order is concerned once price hits your desired price or higher then the sell is triggered and you will have left the market, hopefully, in profit. 

Note that where both a buy or sell order is concerned they can be activated lower or higher if there is a gap in the trading. You would see such gaps in CME futures due to the fact that they don’t trade cover the weekend. 

It really is as simple as that.

Why Would I Use a Limit Order?

An asset may be moving and you haven’t yet found an entry but are anticipating a correction, consolidation or pullback in the market. In this case you would set your limit buy order at the level you see the market correcting to. 

Alternatively you may have highlighted a particular area where you think price may stall. In that instance you set a sell order to lock in profits ahead of that area. 

You could still enter again once price breaks through. However, the sell order executing has guaranteed you don’t give profits back to the market unnecessarily. 

Basically put limit orders allow you to get your preferred entry or exit to and from the markets without you having to constantly watch price action provided the orders execute.

Where do I Set My Limit Order?

This is solely down to your own personal analysis of the market and trading strategy. 

Everyone views the market differently. We are all employing tactics which suit our own strengths. Our strategy and trading preferences will determine where we set our buy and sell orders.

If I’m a day trader then my buy and sell orders are going to be closer to where price starts on that day’s as I’m probably trading the lower time frames such as the 5min, 15min or hourly. 

If I’m a mid term swing trader then I will be looking for deeper pullbacks on my buys and more extended runs on my sells.

You could have highlighted a range that price is moving in. In that instance you would set your buys at the bottom of the range and then your sells at the top of that range. You then rinse and repeat until the price breaks out from the top or bottom.  

Pattern trading may be your strategy and you’ve bought a breakout. Based on the pattern you will have calculated where price should go to so you place your sell order around that level.

Ultimately where you set your limit order depends entirely on your overall strategy.

Example of How To Use Limit Orders

This is BTC/USD on the 1hr time frame between the 7th and 14th September 2021.

As we can see a very clear trading range was created. Each of the areas highlighted are areas where you could set your buy or sell limit orders. Obviously the strategy wouldn’t have been so clean cut and hindsight is a wonderful thing. 

Your first buy would have been determined by a previous major support. 

Your first sell would have been determined by the high created from the capitulation bounce from the initial sell off. 

The second buy would have been placed at the base of the previous wick outside the range which coincided with a previous support range. 

The second sell would have been set at the resistance created by the price action earlier in the range especially as by now you’ve established that the range is sloping. 

The third buy would have been the trickiest to establish. 

You might have placed the buy order level with the base of the previous wick down which had worked in your favour previously. 

However, now that you have your range mapped out you could look to the previous high time frame trend for potential levels. 

Upon doing this you would have seen that there was another clear support level below the previous two levels price had stopped at which would tie in nicely with the bottom of your range.

In both the second and third instances price would have dipped below your buys but that sort of volatility is to be expected in crypto. Plus it’s very unlikely you snipe exact bottoms or tops you are merely trying to catch the meat of the move.

Limit Order Functionality

The final step is actually knowing how to set a limit order.

Below is an example of the limit order set up on Binance. It differs slightly from exchange to exchange but the principle is the same.

In the price box you type the price you want to buy the asset at, in this case we’ve typed $1.4427.

In the box below we type the amount of that asset we want to purchase. In this case we’ve typed 50.

The final box displays how much we would need to pay to complete that order.

On reviewing the order we hit the buy button and the order is placed.

The same process is repeated for selling. We type in how many we want to sell, type a price, review and click sell. 

The beauty of limit orders is that you can cancel them any time provided they haven’t executed.

Which platform should I use to trade crypto?

Ready to trade crypto? There are lots of exchanges to choose from, and one we think is very easy to use for both starter and expert traders is CoinSmart. The Canadian based crypto exchange has all the big coins, and makes it easy to sign up and trade crypto.

Even if you’re using another exchange, it’s aways a good idea to have another on the go. Check out CoinSmart.