The problem with limit orders is that it's a parlay bet. When you buy a stock, you're hoping the price will go up. But when you buy it on a limit order, you're hoping it won't go up until you've bought it. So you're betting on a pretty specific scenario, namely that the price will hold or go down for a bit, then go up. You need to win two ways rather than one.


It doesn't really matter what price you pay for a stock, as long as the price keeps going up after you buy it. So if you get 100 @ 20, then 100 @ 20 1/4, 200 @ 3/4 etc that's fine as long as the price keeps going up. When you finally sell, you might not make as much as you would have liked to, but you will make as much as you were ever entitled to.


But even if the price doesn't keep going up, a limit order offers no protection. It could well get filled on the way down.


Your best way to minimize exposure on a trade is with stops not limits. Carefully-placed sell stops can lock be used to lock in profits and/or minimize losses. But I'm with eLROY in that you should just about always use market orders for your initial trade.


Having said that, I will add that I make exceptions in certain situations. If I expect the market to be extremely fast, as is often the case with IPOs, I may figure that my risk becomes too high above a certain price point, and in that case I will use a limit order. But for run of the mill trades, no.


TRLS