Downside of Limit Orders; Seeing the Big Picture - "Reminiscences of a Stock Operator"

Continuing the series of quotes from Edwin Lefevre's "Reminiscences of a Stock Operator." This part describes main character's experience with the limit orders and why he doesn't believe in using them anymore.

This piece is still applicable even today, in the world of electronic trading. When prices are moving quickly and the market is volatile, there is often no use in trying to get "the" price and you're often better off just running with the market price to establish or exit the position you are in.

"Everything happened as I had foreseen. I was dead right and I lost every cent I had! I was wiped out by something that was unusual. If the unusual never happened there would be no difference in people and then there wouldn't be any fun in life. The game would become merely a matter of addition and subtraction. It would make of us a race of bookkeepers with plodding minds. It's the guessing that develops a man's brain power. Just consider what you have to do to guess right.

The ticker beat me by lagging so far behind the market. I was accustomed to regarding the tape as the best little friend I had because I bet according to what it told me. But this time the tape double-crossed me. The divergence between the printed and the actual prices undid me.

I did worse than not see it; I kept on trading, in and out, regardless of the execution. You see, I never could trade with a limit. I must take my chances with the market. That is what I am trying to beat the market, not the particular price. When I think I should sell, I sell. When I think stocks will go up, I buy. My adherence to that general principle of speculation saved me.

Whenever I did try to limit the prices in order to minimize the disadvantages of trading at the market when the ticker lagged, I simply found that the market got away from me. This happened so often that I stopped trying. I can't tell you how it came to take me so many years to learn that instead of placing piking bets on what the next few quotations were going to be, my game was to anticipate what was going to happen in a big way."