Drill #2: Entering Market Orders AND Limit Orders

For this drill you are going to enter market orders to initiate long trades but LIMIT orders to exit those trades. The limit exit orders will move as the price moves, so maintaining your focus for longer periods of time will be necessary in order to get through this exercise. We probably shouldn’t have to tell you this, but just in case, please complete this drill on your simulator!

To Enter A New (Long) Trade:

This is the same as the last lesson — you will enter a market order to purchase 1 contract of the e-mini S&P contract (usually symbol ESH16 or similar) when the following condition(s) are met:

• Price pushes below the lower Keltner band and then —
• The bar closes, i.e.: the bar that has pushed below the lower Keltner band has completed and a new bar is starting to form.

To Exit Your Trade:

You will exit the trade when price touches the middle band. In order to do this, you will enter a limit order to sell at the price level of the middle band as soon your entry order is filled. Now, here is the tricky part  — as price moves up, the price level of the middle band could move up. If this happens, do not move your limit order up. But, if the middle band price level moves down, move your limit order to sell DOWN. This will have the effect of reducing your profit target. For this exercise, you can never move your limit order up, you can only move it down.

If price touches your limit price but you are not filled, then, when the bar closes and a new one starts to form, you should exit the trade using a market order. Don’t forget to cancel your existing limit order once you are out of the trade.

You should try to enter and exit at least 15 of these buy and sell order sets over the next few days.

Bonus:  You can give yourself bonus points if you keep a spreadsheet of all the trades you make. If you need a sample spreadsheet you can get it here.

Bonus #2: Give yourself a second set of bonus points if you try limit orders on both entry and exit. You would place your entry limit to buy at the price level of the lower band, and adjust it as the band moves up or down. If price hits your level but your order does not get filled by the time the bar closes, then convert the order to a market order.

In this second chart example above, the blue box indicates where you would be entering your market order to initiate a long trade. The red arrows indicate that you will be pulling your sell limit price down, as the middle band moves down. This example shows a losing trade.

Rapid Reaction

In fast markets, the bars can sometimes form faster than you can adjust price using your mouse. To compensate, many trading platforms allow you program “macro” keys to quickly perform certain actions, including adjusting price. In fast markets, you would want to be using your keyboard instead of the mouse for price adjustments. So, if you have the time, make it a point to learn how to use your keyboard to enter orders or adjust prices for orders once they are entered.

Some platforms also allow you to trade directly on your chart. You can point and click at a price level and use your mouse to move order lines to adjust your price levels. If your platform offers this feature, you should try it out in these exercises to see if you prefer working directly on the chart.