Hi, I’m new here and just wondering why we need the stop order. People will normally buy at as lowest price as possible and sell at as highest price as possible. So, what is logic behind buy stop (buying after price rises at certain level) as well as sell stop (selling after price falls at certain level)?
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Hi. Super new to this, but Ive had success in using this to set a future purchase or sell price. For instance I notice a downward trend in a three hour chart, draw trendlines on the chart but the price is currently at the bottom of the channel. I set the stop order for the top of the channel to possibly get in at a better price without having to continously monitor chart.
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Very basically every type of entry into the market would fall into three categories.
The one you mentioned buy low as possible and sell high as possible. (Also used for range trading back to fair price from being too expensive or too cheap)
Second the one you don’t yet understand, used for a break out trade. From the edge of the current range to next fair price.
Third used during times of news releases a market buy or sell now entry.
The point of a stop entry order is that your analysis of the price chart tells you that if price reaches the level where your order is set, it will probably continue to move further in that direction. This is usually true - what price does in the next few bars is probably going to be the same as what it did in the last few bars.
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I’m currently studying forex at Pre-school level on Babypips’ Pipsology. Thanks to Babypips team who use down-to-earth, straighforward explanation, it is easy for me to understand what limit order is all about. On the other hand, buy stop and sell stop sound counter-intuitive to me. I really want to know what kind of situation will have me to buy at higher price while the current price is favorable. Why do I bother waiting for that high price to buy?
Good question about why sometimes you want to wait for higher price to buy before buying.
Really every successful trading strategy uses some method to determine support for a price below the market that it may struggle to go past and resistance at a price above that it will likely struggle to go past.
Then depending on how you analyze the financial instrument you are trading you might want to wait for the price to drop lower close to where you believe it will struggle to break down further and use an order to buy at a lower price and place a stop loss the other side of the level you think is will struggle to go past.
Or the other situation you think the value of the instrument is already a bargain basement price but there is a level of resistance still above the price so you wait until it passes the resistance level before buying when you hope a lot of people currently selling will bail out at a loss adding fuel to your buy position.
Hope this explains well enough.
So in summary most financial markets will trade within a certain range of prices developing support and resistance below and above. And prices will tend to bounce between those levels until new information about the economy tells us the price is too expensive or too cheap. Then the price will shift to begin fluctuating around and fair price level.
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Thank you. I got the point after fast-forwarding my lesson to support and resistance.
There are only two reasons to buy -
- buy because price has been falling
- buy because price has been rising
and both can be profitable.
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Stop orders are used to limit losses or protect profits. A buy stop is used to enter a rising market, ensuring you catch the uptrend. A sell stop is to exit a position or enter a short trade when the price drops past a certain point, helping to minimize losses or capitalize on a downward trend. Essentially, they automate critical buy/sell decisions based on specific market conditions.
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speaking in general… buy or stop orders give you more tranquillity if you know to use them the pro use that all time…simple it will trigger when reach the price… with your sl and tp set up gives you more peace of mind…and if you are breakout trader or waiting for a rebound you will master in
Hi there! Stop orders, like buy stops and sell stops, are used for risk management and strategic entry/exit points. A buy stop could be used to catch upward momentum after a certain price is reached, indicating a potential upward trend, while a sell stop can limit losses or exit a position when the price falls to a certain level, indicating a downward trend. Essentially, they help traders manage potential profits and losses by setting predefined entry and exit points in volatile markets
Stop order is basically taken when your analysis suggests you the market may reach a certain level and once the market reaches that level, the order will be opened itself.
To agree with @Nicholasbrownie the point of using stop orders is to bring an element of confirmation that some momentum is established in one direction. You can enter long at market now if you think price is gonna ride upward, or you can place a stop order a bit higher, ‘wasting’ a few pips on your wager if price does go up, but you might feel the momentum is more 'committed" and gives you more confidence (right or wrong) that the market might continue that way.
I’m no big fan of stop orders (although I do use them in certain circumstances, mostly to avoid spending insane time on the screen waiting for said confirmation) but I think that’s often the thinking behind them.
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Agreed here. The stop orders allow you to enter the position once price is already going in your favor with momentum. So instead of entering on a market order and price turning right around, you would be entered into the trade once price goes in your direction to a point. Stop orders haven’t really worked for me in short term trading but I do use them in my long term trades. I find it easier psychologically to place a stop order and be stopped out instead of a market order. Also, stop and limit orders are usually placed at specific point of interests where you would ideally enter and allow your trade to play out. It isn’t just a random price because you “think” price will go in a specific direction. When done properly you anticipate price to continue going in a specific direction after it reaches your stop order entry price.
Hope this helps, and also @TTH and @Nicholasbrownie had great answers that provide good insight as well.
I haven’t read all the replies, but the ones I have, I seem to use buy stop and sell stop orders differently… I tend to look at support and resistance over long periods. I am in Australia and trade a range of AUD based currency pairs. Currently AUDJPY is historically high. If I look at the daily chart and go back to March 1999, 25 years ago, the price has been at or higher than the current price for approximately 370 days, i.e. over the past 25 years, 23.5 or so years (allowing for weekends), the price has been lower than it is currently. I presently have sell stop orders in place because history tells me if the price keeps going up, it’s going to come back. Vise versa for AUDUSD where I have buy stop orders in place if it keeps going down because it is already around historically low levels.
The logic is that there are breakout trading strategies based on the breakout of some level. These are trend strategies when the price moves along the trend, breaking through certain levels and consolidating above or below them.