Robert G. Hagstrom in 1999 wrote a book on legendary investor Warren Buffett. The book was titled “The Warren Buffett Portfolio.”

This book explains how the Warren Buffett used to pick stocks to buy and when. You will learn about “Focus Investing” too. Focus investing is study of management, how they work and the companies’ financial position compared with other companies in the same business and most importantly their stock price. If the economics of the company is strong he believed it will bring great returns. Once this stock is discovered to invest he called it a stock with great Stock Moat.

Warren Buffett rarely averaged his stocks. Once he decided to invest, he used to buy it in huge quantity and average time holding was five years. Once the company lost its Stock Moat he used to sell.

Focus investing is good for long term investors. The books also deeply studies psychological mindset of Warren Buffett while researching a stock.

Psychology before we trade like greed, fear, planning works to a great extend while researching a stock, option or futures to invest.

I will try to discuss the important suggestions and points to remember from the book. All topics may not be covered but the most important topics are covered below.

Stocks is Not Just A Stock It’s a Business

Most people buy stock to make money fast without thinking that they are actually investing in a business. When you buy a stock you actually become part owner of the company. If the company performs well the stock goes up you make a profit. If it does not perform well, the stock value goes down and you make a loss if you sell.

The point is think about the company before you invest your money, not to invest because you think this stock will go up, instead you must ask yourself will this company perform better over the long term?

To help you learn the best possible investment decisions I have designed a new course on How To Invest Well And Retire Peacefully. It will help you to chose good stocks and mutual funds. Every detail is there like how to chose, when to average, when to sell etc. If interested please contact me.

Size of Your Investment Does Matter

Warren Buffett never invested in too many companies because he believed over diversification may hamper returns. He never invested in just one or two companies either. He had a well balanced portfolio.

How to create a well balanced portfolio is also written in my investment course.

Size allocation, risk management, when to invest and sell, everything is there. This is known as doing your home work before investing in a stock. Buffett use to do his home work properly before investing in any stocks. How to do this home work is there in the investing well course.

Allocation in some good companies over the years may bring amazing returns if the stocks you chose are good and well managed companies. In fact if stock investing is done well you may retire with crores of rupees.

Invest in companies with favorable long-term prospects.

Recommended Reading:

Page 2 of Learn Warren Buffett Investing Style.

A lot of traders get confused on what kinds of stop loss orders to take. Experienced traders put limit orders and watch the markets while new traders watch the markets and take normal stop loss when they see the stock is moving against their trade.
When things can be automated we should automate the process of stop loss orders. This is the Stop Loss Limit Orders. Once the trade is taken a trader can decide where to take a stop loss and keep that order in the system.

If the stock comes near it and breaks the level, the stop loss limit order gets triggered.

Do not get confused Stop Order does not mean that it is just the stop loss order, it can be placed to book profits as well.
However to place a stop loss or stop profit order in the system there is a problem.

When you put the first stop system either the profit taking or the loss, no extra margin money is blocked as the system knows it is only to close the order so nothing extra is required.

But when you place the second stop or profit taking order it is considered a new trade and more margin is required.
Why?

Let say you bought a stock for 100 and want to take profit out at 105. But you are in a hurry and leave your system but want to make sure you want to take a SL at 95. You are first worried about stopping the loss so keep 95 in the system as sell the stock at 95. Now as soon as you want to keep the profit booking stop at 105 this will be treated as a new trade. Your system does not care about your profit or loss. It does not have any brains. All it knows till now is that you bought the stock at 100 and want to sell it for 95, so no more margin is required. But as soon as you keep another stop sell at 105 it treats as a new trade as it considers the first one as the final stop, the second one as a new trade.

So as soon as you keep another sell at 105 it will ask for new margin.

There is another problem. Let say you had the margin and kept the stop loss at 95 and profit stop at 105 and left your system for the urgent work. Let us assume after 1 hour the stop loss is hit at 95 and the order is not complete, but the sell the stock at 105 is still alive in the system.

Why?

Because the system treat edit as a new trade so why should it close that?

Please note that you may consult about this from your broker as well. Some brokers have this facility to cancel any other trade in the same stock or option if one of the stop got triggered. However the second stop has to be in of same type and same stock same number of shares.

For example if the stock was XYZ, then the second stop should be also be of XYZ. If the shares bought was 10 then the second stop should also ne 10 only. If the stock was bought for Intraday then the second stop should also be for Intraday not positional.

Hope you got the point, everything – the type of trade, the indices, the number of shares all should be same only then the second stop will also get cancelled.

But please make sure that your broker allows this or not. As far as I know most brokers only allow one stop else, they treat the second stop as a new order and ask for more margin plus they will not cancel the second order automatically, you will have to manually cancel the second order.

That is the reason it is always better to hedge the trade as soon as you take the original trade. There is no tension there is no extra margin required.

How to hedge the trades is properly explained in my course.

After impulsive trading and intraday trading the biggest mistake traders commit is a no plan in trading. Learn why planning is important in trading.

This series in continuation to the mistake traders to while trading or investing in stock markets.

No Plan In Trading:

After impulsive trading and intraday trading one of the biggest mistake traders do is no plan in trading. Traders trade just to make money, when you ask them how much they want to make in that trade, they fail to answer that question. When you ask them where you will take a loss, again they say they do not know, but then if pressured they will say they are absolutely sure that they will make a profit. This is am amazing traders psychology that ever experts fail to understand.

The above is a clear case of no plan trading.

They do not know where to take a profit or where to take a loss. This obviously leads to losses and then they turn to tips providers, for of course, more losses.

If the path to your destination is not clear, how will you ever reach there? You can’t.

My Advise:

Plan your trader well. Before you trade, ask yourself why are you trading this? What is the reason? What is your profit target? What is the maximum your loss you are willing to take? If all these are not answered, do not trade because you are trading without a plan.

Trading Without A Plan Is Dangerous.

No Goals or Objectives of Trading or Investing:

Yes we trade to make money. But just making money is not enough, you must know the following also:

• Why do you want to make more money?
• How much money you need and in how much time?
• If you are investing as a retirement planning then what is your target every month so that you reach your goals in time?
• What is the maximum risk you ate willing to take?
• What will you do if the maximum risk you are willing to take is lost while trading?

The above comes under goals and objectives of investing and trading. If you are not trading with any goals and objectives in mind your goals may not be met. It is not just money which is important, the time to achieve it is also important.

If you need 10 lakhs for your kids higher education and time left is 5 years, then you must ensure that you make and save at least 2 lakhs a year. This is 16,000 a month.

If you are losing money trading forget about reaching your goals, you may not be able to meet daily expenses after a few years.

If you are planning for retirement then you must be able to save and make at least one crore by the age of 60 to live a peaceful retired life. You read my retirement planning book to achieve that goal.

You can easily calculate how much you need to save every month to reach that goal according to your age. If you are not meeting your goal you are trading without a target.

My Advise:

Trade with a target and goal in mind. Trading without a target is like working hard to get something that you do not know you will ever get or not, and when.

Learn about common mistakes traders do while trading or investing in stock markets, options or futures trading. I have already emphasized a lot of times common mistakes stock investors and traders do while investing in stocks markets. However these are some very common and basic mistakes investors do:

1. Impulsive Trading:

This is the most common mistake traders do. For example today Nifty is falling. I can assure that Puts will be bought today more than Calls.

NSE 3-Feb-2017 at 11.19 am

Impulsive trading or investing is just like impulsive buying. Both are waste of money and time.

Without doing any research traders invest their money in either a stock, option or a future.

For example if they have decided to trade SBI, they will see its going up or down. If going down short the stock or buy a put as per their comfort strike price or sell a future. If that stock is going up, then they will buy it, or buy any strike call, or buy a future.

No plan nothing, just impulsive trading.

What happens after that is a different story. What is more important is that there is no plan in this trading. It is obvious that impulse traders never make money.

Impulsive Trading is emotional trading – a must avoid in stock markets.

Do not let emotions rule your trading style.

2. Intraday Trading:

In India Intraday Trading also known as Day trading all over the world is the most popular form of trading. From equities, to options to futures they try everything and keep losing. After a few lakhs of rupees lost these kind of traders either stop trading or try some other type of trading.
Forget stock markets for some time now.

In the real world who are day or Intraday traders?

Labours, rickshaw pullers, street shop owners, dhobis. But are doctors, engineers and top executives day traders? No. They all look at monthly income or yearly income. They are least bothered about how much they will earn is a single day. All they look at is yearly package before taking a job. Once they get it they do not even calculate total yearly income divided by 365 to get the figure of what they earn in a day. It’s actually foolish.

For some strange reason the same doctors or engineers when they enter the start trading business they begin stock trading as a day trader. I know how much ever the experts will write against day trading, this trend will continue and is likely to continue till stock markets lasts. Why people look at stock trading as a different business is what I fail to understand.

Stock trading is just like any other business. Do not treat stock market trading as a different business. Risk and reward both are there so you must take a balanced approach and think long term not Intraday.

Our job is to write against day trading but its not in our hands that those who read listen or not. So take your call it’s your money. If you are losing money day trading stop it today.

Recommended reading: No Plan Trading Is A Huge Mistake In Stock Investing

I got an email just now from one of my email subscribers:

Dear Dilip,

Many thanks in advance.

I replied with this:

In India there is very less liquidity in VIX future trading.

WARNING: Even if you find some liquidity there PLEASE DO NOT TRADE.

VIX future size is very big.

The intention to start VIX future trading was for HNIs and institutional investors, not retail traders.

Due to the above reason VIX lot size is kept big so that retail traders stay away from it.

VIX moves 1% easily on normal days. Tomorrow is the budget day, it is obvious the markets are going to be very volatile so will be VIX. One point against your trade, may take out a lot of money from your account and in panic you will close the trade.

Why do you think there is very less liquidity in VIX trading in India? The reason is written above.

In the US where there is good liquidity in VIX trading, still retail investors stay away. Reason is same. VIX trading is even more risky than options and futures.

Retail traders in US have more knowledge than traders our country, still they stay away.

Why VIX trading was introduced in many countries including India is a vast topic which is beyond the scope of this article.

Due to the above reasons please do not even look at the liquidity of VIX futures, you will be tempted to trade and may lose money. Even if you make money due to high risk you will exit in one point profit due to fear of losing.

What difference does it make? Nothing.

So just stay away from VIX trading not just tomorrow, but as long as the lot size is not reduced.

Please consider my emails as free knowledge, do not base your trades on them without doing thorough research.

VIX is important to see to guess options premiums and initiate a trade. VIX is an important part of my course. Delta, Gamma, Theta are not that important as the strike selection is well explained.

Once you know the strike selection Delta, Gamma and Theta are doing their job behind which is what is more important than to know what it is for a particular strike.

I know a lot of you look for Delta, Gamma and Theta to select strikes to sell or buy. In the course strike selection already takes care of that.

You must do the course primarily for the education you will get from it, the strategies themselves are bonus.

This email was sent to my newsletter subscribers on 30-Jan-2017:

This is very important message which I think i should share with all of you. It is my duty.

This is the time a lot of traders will start buying calls or puts in the hope the stock markets will move rapidly on Feb 1 2017, and Feb 2 2017, due to the budget announcement on Feb 1, 2017 instead of end of Feb every year as a usual practice.

Agreed the markets will move but there is no guarantee of who will make money.

If it goes up, call buyers will make money.
If it goes down, put buyers will make money.

Some trader will trade the long strangle or the long straddle.

So what is the problem? Here is problem:

INDIA VIX now is 16.49, that is 0.49 points up or 3.06% up from previous close.

This will increase till the budget day. Once the budget is out it will start to drop at a rapid rate.

Most option traders do not know that when VIX falls, the option premium also falls.

Now here is the problem. Even if you got the direction right, there is a chance that the Option will not be increasing in the premiums in the way you thought it will.

You will get disappointed and exit the trade in either a small loss, big loss or a very small profit.

I have said it many times in my blog and I repeat it again.

“There is no home run of money in stock markets or any business.”

Take out the history of any businessman or a businesswoman. He or she must have taken years to make a lot of money. No one ever got rich in a single business or a single trade.

Let us suppose you make 10k and exit. Will that change your life? No.

So why take the unnecessary risk?

That’s the reason I am telling you all please wait for the stock markets to stabilize, do not trade out of compulsion or fun. Please control your greed. This is the time to let fear take over and do not trade.

Of course I will email what to trade on the budget day or before that to my course subscribers. Since it is a part of my course I cannot send that email to the free subscribers.

Update on 31-Jan-2017:

The following newsletter was sent today 31-Jan-2017:

This is in continuation of my yesterdays email.

I said the VIX will increase until the budget day.

Today INDIA VIX has increased by 1.44% and is currently at 16.91 at 1.19 pm.

These are the factors that can move the markets due to General Budget 2017:

Date: Jan 27, 2017

Today I am very busy finishing writing for How To Invest Well And Retire Peacefully. Some people have paid and I have promised them that I will finish writing the eBook by this Saturday. If you are one of those who paid and by chance did not read my email please note that I will send the eBook this Saturday or maximum by Sunday. I cannot give you trash. I have to give you the best of the knowledge as much as possible. I hope you understand that it takes time to write a thing like that. I cannot spoil my name for some money. For me honesty is more important than anything else.

Anyway please check this post I wrote a month back:
8000 Is A Big Support For Nifty

Almost a month, and Nifty is now over 8664. This is 8.3% up.

Was there any Technical Analysis (TA) involved? NO. Pure logic.

The Very First Line Was This:

8000 Is a big support For Nifty because when it breaches a psychological level, greedy traders come in and start buying stocks to take Nifty high.

Then this:

If you refer my previous emails you will see that I had written that 8000 is a big support for Nifty. It is very hard for Nifty to break 8000 on the downside because there is no big negative news except demonetization that the market has already factored in. Moreover greedy traders come in and start buying stocks to take Nifty high.

The reason why it is not going up fast in spite of US stock markets hitting all time high is the liquidity is low. The retail traders are busy taking money out from the banks and put food on the table. Right now getting and buying the essentials of living a life is more important than investing money in stock markets.

Once this 500 and 1000 rupees notes demonetization effect gets over people will once again start investing in stock markets. I do not feel that day is very far as now days you do not see long queue in the banks.

Until the cloud does not get over there is going to be no trend in the markets. The best trade to do now is the non-directional strategies in my course.

There you go. All predictions coming true. This is known as coming to conclusion of what works in stock markets. No Price Action, Bollinger Bands, Candle Sticks, Charts etc. Just simple logic and it worked.

I remember one month back almost all big Technical Analyst were saying that Nifty can see levels of 7600 or less. I had different views and it worked.

My point is if you have simple logic of how markets works you can make money – rest is noise.

Over the long term it is logic that works not magic. This is exactly the things you will learn in my course. There is absolutely no speculations or magic, its pure logic of how options work.

I am not a magician nor an astrologer. I am a simple man, a simple trader, like you, trading from home and writing for my option course blog and helping traders.

I am very happy doing it. Let the world say whatever they want to say. It is their job, why should I bother? I just am bothered about what my brain says and what may happen due to current scenarios.

This is not the first time I have said something and it worked, it has happened earlier too. It is also obvious that I keep saying a lot of more things apart from what I tell to my free subscribers in the site and by this newsletters. They have paid me and they deserve more. I am obliged and its my duty to help them more.

I will keep doing it.

Thanks,
Dilip Shaw

Read how swing trading is done and types of swing traders.

What is Swing Trading

A lot of people get confused when they are told about Swing Trading. Lot of them assume that Swing Trading is same as Day or Intraday Trading.

Most of the positional naked traders especially Future traders are swing traders. It is important to note that they themselves do not know that they are Swing Traders.

In technical terms even day traders are Swing Traders, but Intraday trading is based purely on small moves so it cannot fall under proper Swing Trading.

Traders do know that for every fall in a stock there is a support and for every rise there is a resistance.
Swing Traders try to capture and benefit from the stock’s or any financial instrument like Options and Futures, movement especially support and resistance.

It is a different story that most Swing Traders end up in huge losses, so hedging is highly recommended.

How Swing Traders Get The Support and Resistance of a Stock?

Novice Swing Traders speculate the movement of a stock and initiate a swing trade by buying or selling a future, and they lose heavily.

Experienced traders study Technical Analysis to look for stocks with huge volatility or short term momentum.

Swing Traders come into action during the results season. As soon as quarterly result of a stock is announced they find the support and resistance of a stock and take entry of a trade.

How Many Types of Swing Traders Are There?

There are two types of Swing Traders:

1. Short Term Swing Traders.
2. Long Term Swing Traders.

Short Term Swing Traders are those who trade in derivatives like options and futures and hold the position till expiry only. Which means it may be one day till expiry day.

Long Term Swing Traders usually do not trade in derivatives. They buy stock in cash when they see support and hold for the long term. This may be from one month to many months. Warren Buffet is the world’s best Long Term Swing Trader. He buys a stock when he sees a strong Economy MOAT, and sells when it loses its MOAT.

What is “Economic Moat”?

Economic moat is the competitive advantage that one company has over other companies in the same industry; this term was coined by Warren Buffett, a renowned investor and executive at Berkshire Hathaway. The wider the moat, the larger and more sustainable the competitive advantage of a firm. By having a well-known brand name, pricing power and a large portion of market demand, a company with a wide moat possesses characteristics that act as barriers against other companies wanting to enter into the industry.

Economic moat describes a company’s competitive advantage derived as a result of various business tactics that allow it to earn above-average profits for a sustainable period of time. Companies that obtain defensible competitive advantage from patents, cutting-edge technologies and other cost advantages can have a wide economic moat that curbs competition within their industry. Also, firms that enjoy strong economic moat tend to demonstrate solid financial performance and rising returns on capital over time. The most common sources of economic moat are cost advantages, switching costs, efficient scale, intangible assets and network effects.

Source: Investopedia.

Who Are Swing Traders?

Mainly retail traders who are Swing Traders. Large financial institutions do not do Swing Trading as a lot of money of their clients is at stake. One big bad trade may wipe out a huge portion of wealth from a single trade. They fear that. Even if they want to do Swing Trading they do it only on a portion of their cash like 10% or less and hedge it to protect unlimited loses.

My course can help retail traders like you learn proper hedging methods to protect huge losses. Even small retail traders sometimes take wrong trade and keep it in the hope that markets will reverse direction and they will make a profit. It does not happen and one day they exit with a huge loss. Therefore it is highly recommended that you learn hedging methods and non-directional trading strategies where there is no need to find direction and still you can make a profit without bothering about where Nifty is heading the next day.

Time Involved in Swing Trading

Too much time is involved in Swing Trading. The trader has to keep monitoring the trade as long as the markets are open. Institutional traders do not like too much monitoring as they have other jobs like fundamental analysis to buy stocks for the long term, cash allocation, client management etc. Therefore only a small portion of cash is allocated to Swing Trading. The team which does Swing trading is different than the team doing fundamental analysis to buy stocks for the long term. Institutional traders mostly buy stocks of good companies for the long term swing trading. Only a small portion goes into short term swing trading.

Another reason why large institutions cannot do swing trading with all the capital is that large institutions have too much cash so they are bound to trade only in stocks that are highly liquid. If there is less liquidity their trade may not be completed. Therefore they buy-hold-sell stocks for long term, only a small portion goes into derivative swing trading. Some institutional traders do not do swing trading at all.

However most retail traders whether Intraday or day traders do swing trading and suffer huge losses as they are not able to:
1. Find the support and resistance, and,
2. Do not hedge their positions.

How Long Swing Traders Hold Positions?

Day traders do not hold positions overnight. They are very short term swing traders.

Positional traders may hold positions overnight or until expiry day, but usually these traders are looking for bigger profits so they do not clear the trade the same day. Most of the positional traders try to make 5% return from every trade.

For positional swing trading the risk is more. It is therefore very important that careful position sizing is done. If you are a swing trader please allocate only a small portion of your cash in large big swing trading else a huge portion of your trading money may get wiped out in one bad trade.

How Experienced Positional Swing Traders Calculate Support & Resistance Levels Of A Stock?

Experienced positional swing traders do calculate both fundamental analysis and technical analysis to arrive at the support and resistance level of a stock or Indices before taking a trade. These may include larger time frame charts including the 15-minute, 60-minute, daily and weekly charts. This is done because positional swing traders need more holding time to capture the price move of 5% or more.

Highly experienced positional swing traders look for multi-day chart patterns like moving average crossovers, cup-and-handle patterns, head and shoulders patterns, flags, triangles, key reversal candlesticks, such as hammers for reversal bottoms and shooting stars for reversal price tops. These help them to make a strong game plan. They are willing to give the stock space to move to capture the profits therefore their stop loses are big like 8-10% of the move, however profit taking also increases to 10-12%. As a big move cannot come in a day or two, these positions are held overnight to any day until expiry if the trade was taken in options or futures. But if the trade was taken in stock cash then they may hold for months.

What Is The Problem Of Derivatives Swing Traders?

Derivatives swing traders, short or long have a huge problem – it is the stop loss. Swing options and futures traders face a huge problem in taking a stop loss. Supposing their stop loss is 5% but the next day the stock gaps down 10%, they are forced to take a stop loss at 10%. This one loss takes them down by 2 profitable trades. This is the reason my emphasis is on hedging. If they hedged their positions properly it would have saved them from this huge loss and restricted it to may be 2% or less which is half of a profitable trade. Next trade if profitable they are in profit even after taking loss in the earlier trade.

With Intraday day traders too the story is the same. It is not uncommon for a stock to suddenly fall down 5%, then the day traders take a loss. If this was properly hedged, the losses would have been significantly reduced. It is also seen that position size of day traders is much more than positional traders as Intraday traders leverage their positions heavily by getting that extra Intraday trading margin. Positional traders do not get a such big leverage, so are forced to reduce position sizing.

Taking extra leverage is greed which sucks Intraday traders into betting big and losing big.

Are you a swing trader? If yes what problems you are facing?

Learn the difference between MARKET And LIMIT Orders and try to execute the one which can help you make more profits from the stock markets.

New stock trades do not understand the difference between MARKET And LIMIT Orders and by mistake press the Market Order button to order a trade in their system which gets executed immediately.

If you are trading in very liquid stocks then there is not much difference between Market And Limit Orders as the difference between ask and bid price will not be much.

However experienced traders know that if a stock, option or future is not very liquid there is a big gap between ask and bid price. Traders who press market orders get the worst prices, because they have to accept whatever rates the best seller or the best buyer is offering them. Hitting Market order is accepting the market price not bargaining the price as we do when we go to the super markets to buy clothes or vegetables.

Experienced traders look at the Ask Price and Bid Price before keeping a Limit Order.

In short Ask Price is the price a seller, (trader or a dealer) of a stock or an option is willing to accept to sell that stock or option. Best Ask is lowest price a seller is willing to sell stock at that particular time of trading.

In short Bid Price is the best price a buyer, (trader or a dealer) is willing to buy that stock or an option at that particular time. Best price is the highest price buyer is bidding or willing to buy the stock.

So why not hit Market Order and get the best price available? Here comes the bargain called the Limit Order.

Let say a less liquid stock (a stock where at that time there are less traders), LTP (Last Trading Price) is 10, and currently the Ask Price is 10.30 and the Bid Price is 9.90. In simple words, for this stock currently in the market there are only a few buyers and sellers, and the best selling price someone has quoted is 10.30 among the buyers the best buyer is willing to buy at 9.90 only. If this continues and no one is willing to drop or increase the price, the trade will not take place. They both are hoping that the seller decrease the price and the buyer increases it.

Here a novice trader come in and wants to sell the stock looking at LTP at 10 and hits the sell button at “Market Order”. To his excitement the order gets completed but to his surprise he was able to sell it at 9.90 not 10 as he thought of looking at the LTP.

LTP now changes to 9.90 as the last trade took at 9.90. He then calls the broker why it happened? The broker sees his trade and tells him since he hit the Market Order he will get the best buyer’s prices only, not the LTP or the best seller’s price as Market order instantly made his order get executed at the prevailing rate whatever is being offered. He then immediately asks what needed to be done to get a better price.

The broker answers he should have hit the LIMIT Order, not the MARKET Order. The trader feels dejected but what can be done now the order was completed. He then studies what is the difference between LIMIT Order and MARKET Order.

Difference Between Market And Limit Orders

He then finds out MARKET Order will get executed immediately at whatever prices prevailing at the markets, whereas,
LIMIT Order will get executed at the rate at which the buyer or seller want the trade to get executed at.

Looking at the above example.

An experienced trader wants to buy the stock. Experienced traders do not bother to see the LTP. Since he wants to buy he will first see the BID then the ASK price.

Ask Price is 10.30 and the Bid Price is 9.90.

He tries to lure the sellers, so keeps the LIMIT Order to buy the stock at 9.95. 0.05 points better than the best buyer. Now the trading system for this stock in all stock trader’s platform in India will change the BID Price to 9.95. LTP remains same as no trade has taken place.

Suddenly another seller comes in and keeps the LIMIT Order to sell at 10.20. Now all traders will see:
LTP 10, Ask 10.20, Bid 9.95.

The 9.95 buyer lures more and increases or modifies the Buy LIMIT Order to 10.01.
Now all traders will see:
LTP 10, Ask 10.20, Bid 10.01.

Seeing this one more seller gets lured into selling and reduces the Sell LIMIT Order to 10.10.
Now all traders will see:
LTP 10, Ask 10.10, Bid 10.01.

A trader increases BID to 10.05. One seller gets lured seeing the price at 10.05 and hits MARKET Order and the order gets executed immediately.
Now all traders will see:
LTP 10.05, Ask changes to the next best Ask Price, Bid changes to the next best Bid Price.

With this article hope it is now clear what is the difference between Market Orders and Limit Orders.

In the conservative options course we take benefit of limit orders, we do not hit market orders and get better rates and to get more profits. This keeps happening for life.

If you want to know about my options course please contact me.

Recommended Reading:

Ask, Bid prices and Spreads in stock markets