Timing is of great significance in trading. But you do not necessarily have to be at the chart and await the opportune moment.
This is where pending orders come in handy.
Pending orders enable traders to predetermine trades where the order is automatically triggered when the price reaches a certain level. This assists in strategizing trades, taking advantage and evading emotional judgments.
The four key categories of pending orders are simply explained below.
What Are Pending Orders?
A pending order is an order which is sent to a broker to either sell or buy an asset at a future price.
Rather than getting into the market at once, you wait until the price gets to a specified level.
It has four major forms:
- Buy Limit
- Sell Limit
- Buy Stop
- Sell Stop
Buy Limit Order
Buy Limit order is made at price lower than the market price.
Meaning:
You believe that the price will decrease and then increase.
Example:
Current price: 1.1000
Buy Limit set at: 1.0950
The buy order is automatically triggered when the price falls to 1.0950.
When to use:
- Support zones
- Discounted price levels
- Reversal buying setups
Sell Limit Order
Sell Limit order is set above the prevailing market price.
Meaning:
You anticipate an upward and downward movement in the price.
Example:
Current price: 1.1000
Sell Limit set at: 1.1050
When the price reaches 1.1050, the sell order is activated.
When to use:
- Resistance zones
- Overbought areas
- Reversal selling setups
Buy Stop Order
A Buy Stop order is said to be placed above the current price.
Meaning:
You anticipate the price to rise and keep on rising.
Example:
Current price: 1.1000
Buy Stop set at: 1.1100
The buy trade is triggered when price is at 1.1100.
When to use:
- Breakout trading
- Strong bullish momentum
- News-driven moves
Sell Stop Order
Sell Stop order is done at a lower price.
Meaning:
You anticipate the price to disintegrate and further drop.
Example:
Current price: 1.1000
Sell Stop set at: 1.0900
The sell trade goes off as price hits 1.0900.
When to use:
- Breakdown trading
- Strong bearish momentum
- Support break strategies
Quick Summary
Buy Limit: Buy the dip at a lower price.
Sell Limit: Sell the rally when it is above current price.
Buy Stop: Buy above prevailing price, break out buy.
Sell Stop: Breakout of current price, sell.
The use of pending Orders
Orders outstanding assist traders:
- Do not make emotional trading choices.
- Make advance plan trades.
- Enter at specific prices.
- Trade without having to look at charts all the time.
- Improve discipline and consistency
Final Thoughts
Unfulfilled orders are a significant aspect of professional trading. They enable traders to make strategies precise rather than responding emotionally to market movements.
Understanding these types of orders is one of the significant steps on the way to being a disciplined and organized trader on Forex, crypto, and other financial markets.
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