The Limit If Touched Order (LIT Order for short) is, like the Stop Limit Order, an order type that is not very well known among private traders and is therefore rarely used. Nevertheless, the LIT order offers some advantages in certain situations and for certain requirements, which is why it can be worthwhile to have this order type in your "repertoire". In this article you will learn how exactly a Limit If Touched Order works and how it differs from a Limit Order and a Stop Limit Order.
What is a Limit If Touched Order?
A Limit If Touched (LIT) order is an order to the broker to buy or sell any underlying at a previously defined limit price or at a better price as soon as a trigger price is reached. The trigger price and the limit price can be different. A Limit If Touched sell order is above the current market price; an LIT buy order is below the current price.
Difference from Stop Limit Order
With a stop limit order, as with an LIT order, a limit order can be placed as soon as a predefined price level is reached, which does not have to be identical to the limit price. However, with a stop limit buy order, the stop price is above the current market price, whereas an LIT buy order is placed below the current price. A stop limit sell order is placed below the current price level, whereas an LIT sell order is placed above the current price.
Example: Limit If Touched Order Walmart Share
As you can see in the chart below, Walmart stock has formed an area of resistance in the $132.50 area in September 2020.
Since a breakout above the resistance area would increase the probability of a trend continuation, you could pursue the strategy of "buying the breakout". However, you want to wait until the stock has broken out clearly and sustainably. Since this would mean that you would have to buy at a comparatively high price, you could speculate that after the breakout there will be a correction to the breakout level, which you can use to enter.
In this case you have the possibility to define a trigger price (in this example at 135 USD). As soon as this is reached, a Limit Buy order will be transmitted, with the limit price at 132.50 USD.
