This is my first post here and it's probably a dumb question to most of you, but I need to make sure I'm understanding this term correctly. I've been doing a lot of reading lately and keep seeing this similar terminology but no clear explanation of it. What does it mean if someone is talking about a strategy and they say something like "If this condition exists, we enter the next day on a 5% limit"? I assume limit means limit order, but what is meant by the 5%? Does this mean to set a limit order at up to +5% of the closing price? Thanks!
It means nothing and there is no such term, unless it’s in a context explained by the person using that term.
Hmm...I'll have to backtrack a little and see if I missed something in what I've been reading then. The way it's written in the book I'm reading, the author just seems to throw it out there like it's a phrase that's regularly used and everyone should understand. Thanks for the answer though, I appreciate it.
I've never heard that terminology used in stock trading. However it could mean a 5% trailing on current price.
The overall context is talking about the testing of a strategy using RSI signals for entries and various exit methods. The basics are that if the RSI is at whatever number, enter a trade on the next day. The exact text: We looked at all stocks above the 200-day MA from 1995-2007 which had closed at a 10-day low, and entered the next day on a 5% limit. We then tested various exits. Here are the results.
Given above, I agree with your interpretation. Basically they are willing to buy/sell within 5% of the previous close (in case of a gap)
That's what I was thinking. It was a little bit of insurance to try to get in on the trade if there was a small gap but not go too far.
That sounds very much like a Larry Conners quote. He is saying "today made a 10-day low, enter tomorrow on a limit order 5% below today's close." (.95 X today's close) I've thoroughly backtested his methods myself, and yes they work.