Rules for placing trade orders

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Rules for placing trade orders

 

Correct placement of trade orders that clearly regulate entry and exit points in accordance with the trader’s trading style is an integral part of successful trading. This article describes the main types of orders used in the Forex market

Types of warrants:

Market order

This type of order is most often used by traders. The market order is executed immediately at the current market bid or ask price displayed in the trader’s terminal. A market order is used to immediately open or close a short or long position

Stop the warrant

When the value of an investment instrument reaches a predetermined level, a stop order becomes an ordinary market order. A Stop order can be used to open a new position as well as to close an existing one.

Stop Buy Order – an order to buy a currency pair when a certain price level is reached, which is higher than the current value of the pair.

Stop Sell order – an order to sell a currency pair when a certain price level is reached, which is lower than the current value of the pair.

1) Stop orders are most often used to open a position in the event of a breakthrough in support/resistance levels

For example, suppose that the value of USD/CHF rises sharply to the level of resistance, and the trader believes that after the breakthrough of this level, the pair will continue to grow. In this case, the trader can place a stop order to buy a pair just above the resistance level. If the price reaches the value set by the trader, a long position will be automatically opened.

Similarly, a stop order can be used to open a short position when a resistance level breaks out. In this case, the trader can place a stop order to sell the currency pair just below the resistance level. If the price reaches the set value, a short position will be automatically opened

2) Use of stop orders to limit losses.

From time to time, any trader suffers losses, the size of which significantly affects his total performance. Before opening a position the trader should clearly define the exit point from the market in case of unfavorable events. One of the most effective ways to limit losses is to use a stop order called a stop-loss.

If a trader takes a long position on a currency pair, such as USD/CHF, he expects its value to grow. A trader can limit his potential losses by placing a Stop Sell order if the pair’s value drops to a certain level. When a Stop Sell order is triggered, the previously opened long position will be liquidated

To close a short position, a Stop Buy order is used.

3) Stop orders may be used to protect profits

If an open position starts to make a profit, the trader can move the stop-loss in such a way that even if it triggers, trading would be profitable. The trader moves the stop-loss from the loss-making area to the profitable one in case the trend reverses and the trading target is not reached, thus protecting the already gained profit. (For more details on the principles of using stop-losses, see the article on Stop-loss hunting by major players.)

Limit orders

A Buy Limit Order is an instruction to buy a currency pair at a price that is lower than the current market value of the pair. A Sell Limit order is used to open a short position at a price that is higher than the current market value of the pair.

1) Limit orders are used to open positions in case of an unsuccessful breakthrough.

A limit order is used if a trader predicts an unsuccessful breakthrough of the support/resistance line and expects prices to rebound. For example, suppose a trader expects an unsuccessful breakthrough of the resistance line and the end of the USD/CHF rally.

In this case, it places a Sell Limit order around the resistance level. As a result of the order execution, a short position will be opened at the price specified by the trader. Limit orders can also be used to open long positions when prices rebound from the support level. For example, if a trader expects to stop the fall of USD/CHF and the price reversal from the support level, he can open a long position with a buy limit order, placing it several points above the support level. As a result of the order execution, a long position will be opened at the price specified by the trader.

2) Limit orders are used for profit taking

Before opening a market position, a trader should determine the target profit level. A limit order allows you to automatically close a position when a certain price level is reached. If a long position is opened, a Sell Limit order must be used; if a short position, a Buy Limit must be used. The orders used must be in the profit zone.

A wide variety of trading orders allows a trader to enter and exit the market efficiently according to the established trading plans. In addition to market orders, stop orders and limit orders, there are other types of trade orders, but they are much less frequently used in practice. Choosing the right trade order can contribute to the successful trading of the trader and save him from unnecessary losses.