Different order types, why would you need them?

Trading Discussion News and Economy
21

Hello, Lester

I guess we’ll have to use 8 different examples, to illustrate the use of the 8 different STOP/LIMIT order types.

So, fasten your seat-belt. ---- Here goes:

  1. Let’s say you have no position in the market. You want to go LONG a particular pair IF it breaks above a certain resistance level which is currently above the market. Let’s put prices on this example. Let’s say the current price is 1.2345, and you observe a resistance level at 1.3500. You want to go LONG, but you want to see this pair break that resistance level, before you are willing to buy. You decide to place an order to go LONG at 1.4700. What type of order do you enter? Referring to the table I posted, you would place a BUY STOP order at 1.4700.

  2. Let’s say you have no position in the market. You want to go SHORT a particular pair IF the market offers you a little better (higher) price. Let’s say the current price is 1.2345, and you want to go SHORT at 1.3500, if the market trades up to that price. What type of order do you enter? From the table, you would place a SELL LIMIT order at 1.3500.

  3. Let’s say you have no position in the market. You want to go LONG a particular pair IF the market offers you a little better (lower) price. Let’s say the current price is 1.2345, and you want to go LONG at 1.1000, if the market trades down to that price. What type of order do you enter? You would enter a BUY LIMIT order at 1.1000.

  4. Let’s say you have no position in the market. You want to go SHORT a particular pair IF it breaks below a certain support level which is currently below the market. Let’s say the current price is 1.2345, and you want to go SHORT if the price breaks below 1.1500. You decide to place an order to go SHORT at 1.1000. What type of order do you enter? You would enter a SELL STOP order at 1.1000.

  5. Let’s say you have a SHORT position in a particular pair, which you entered at 1.2345. If the market moves against you, you want to minimize your loss. You decide that IF the market moves up to 1.4000, you want to take your loss and get out of your SHORT position. You want to place an order to BUY back your SHORT at 1.4000. What type of order do you enter? From the table, you would enter a BUY STOP order at 1.4000. And, obviously, this BUY STOP order would be functioning as a STOP-LOSS order.

  6. Let’s say you have a LONG position in a particular pair, which you entered at 1.2345. You are expecting the market to trade up to 1.5000 or higher, and you decide to take your profit and get out if the market hits 1.5000. What type of order do you place to close your LONG position for a profit? The table tells you to enter a SELL LIMIT order at 1.5000. And, clearly, this SELL LIMIT order would be functioning as a TAKE PROFIT order.

  7. Let’s say you have a SHORT position in a particular pair, which you entered at 1.2345. You are expecting the market to trade down to 1.0500 or lower, and you decide to take you profit and get out if the market hits 1.0500. What type of order do you place to close your SHORT position for a profit? From the table, you would place a BUY LIMIT order at 1.0500. And, this BUY LIMIT order clearly is a TAKE PROFIT order.

  8. Let’s say you have a LONG position in a particular pair, which you entered at 1.2345. If the market moves against you, you want to minimize your loss. You decide that IF the market moves down to 1.1200, you want to take your loss, and get out of your LONG position. You want to place an order to SELL your LONG position at 1.1200. What type of order do you enter? You would enter a SELL STOP at 1.1200. Clearly, this SELL STOP order would be functioning as a STOP-LOSS order.

I hope that clears up the confusion.

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