Order is one of the first instruments faced by the trader at the beginning of trading. I think everyone has heard about the need to set a stop loss and even understand its value, but not sure what all novice traders aware of such varieties as a trailing stop. Essentially a order is a setting of task of trader to the broker to perform a specific task: opening or closing a position at the desired (best) price.
Existing types of orders on exchange
It is important to understand that the order is not just an indication of the “Open position at this level”, it is a separate tool that has its settings in the terminal. Some orders can be modified after their installation or cancelled. The advantage of the orders — the ability to transfer the process of trading with the manual mode in semi-automatic, but only with a clear understanding of the direction of the trend and own strategy. There are cases when a misunderstanding of orders only accelerated the loss of a trader’s deposit.
How the setting of order works:
- order formation. In the trading platform, the trader opens a window of setting the orders and sets the required parameters. Thre are few: only 2-4 depending on the type of order;
- checking of orders. The broker checks the correctness of parameters: valid value prices, the availability of money on deposit, etc. In case of rejection of order, the trader receives the justification for the actions of the broker. Important: brokers”kitchen” perfect control of the situation and understand how the order that set by the trader, be successful. And alas, in the most successful case, the broker-the scammer simply rejects the warrant, resulting in the trader or suffers a loss or misses an opportunity to earn;
- the execution of the order. Depending on the type of order maybe it is instant execution or pending (to achieve a certain price level). Important: in volatile markets slippage of orders is possible (the price has gone further, order is not opened). Reason: those who are willing would be the counterparty to the transaction.
In MetaTrader (one of the most popular trading platforms) there are 8 types of orders. 2 of them are an instant market order to buy or sell an asset (as in binary options — for the transaction just a click away). The pending order types are more diverse:
Setting of order to acquire the asset at a price lower than the current one. That is, at the moment the price goes down, but the trader realizes that the level of resistance of the price will reverse up. In order to follow this process, it opens the order. It is logical that if the price does not reverse, the order will still go off. That is why you have to set a stop loss below this order.
The essence is the same: a trader understands that to achieve the resistance level the price will go down, and in the intended point of reversal places an order. Stop loss is even higher.
The type of order- opening of buy order at a price above the current one. It seems that this is illogical, but this order is more related to insuring. The order is used when there is a strong level, which may determine further price movement. And this level can often remain non-punched. Placing of orders can reinsure against loss due to early opening of the transaction.
Setting sell orders below current price. Reassurance in case if the deal was opened too early and started to bear the loss.
Buy Stop Limit
In MT 4 there is no such order, the developers added it in the 5th version of the program, in order to confuse the trader:) Simply, it is a pending order to place pending order to buy. Once the trend reaches the Buy Stop order, an automatic request to create a Buy Limit order at a lower price is sent, which will open a position. It is unlikely that the warrant will be useful for volatile markets and short-term strategies, but for mid-term ones it will!
Sell Stop Limit
Everything is completely the opposite of the previous order. Professional traders say that the last two orders are perfectly coordinated with the wave theory of Elliott, which says that the trend consists of a main motion and correction. Just after the correction a trade is opened.
And finally, a few words about stop loss. The data types of orders in almost all terminals are the same. But often, a trailing stop is used in strategies. If a normal stop-loss is in place, which would not move the price, then the trailing “crawls” for the price of a fixed distance behind it, but not change its position, if the distance between the stop and the price is reduced. It seems to be a cool tool, but when current or Internet is switched off, the broker will not see this stop.
A warrant is only part of useful trading tools, but I would say the training to work with them in a section along with the sections “Graphics technical analysis tools, Analytical tools, fundamental analysis etc. Recommend to check with your broker possible nuances about the types of orders and their execution. Production of orders is well executed on a demo account with the condition of placing a timeframe of 4 hours or more. Choose for trainiong less liquid assets, where the construction of the resistance levels and chart patterns in technical analysis is much slower.
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