ONLINE TRADING ORDERS
The selection and placement of a trading order must be compatible not only to individual strategies but also to the current market conditions.
Market conditions matter when selecting trading orders, for example:
- volatile market conditions require the use of wide trailing-stops
- ranging market conditions require the use of fixed-stops (below/above major support and resistance levels)
These are some key factors to consider during the selection of trading orders:
◙ General Market Conditions (Volatile, Trending, and Ranging Markets)
◙ Risk Acceptance
◙ Technical Analysis (Price Channels, Support/Resistance, Chart Patterns, Pivots, etc.)
◙ Profit/Loss Ratio
◙ Available Margin
Major Types of Trading Order
Trading orders include market and pending orders:
(1) Market Orders
Market orders are filled at the best current market price available. This order type can prove very risky when trading in volatile markets with high execution-delays.
■ Buy rate (best current available market offer price)
■ Sell rate (best current available market bid price)
Forex traders should prefer ECN Forex Brokers offering minimal latency.
(2) Good-Till-Canceled (GTC)
This is a typical order type that stays in the market until it is filled or until it is canceled.
■ Buy rate (predetermined by the trader)
■ Sell rate (predetermined by the trader)
(3) Good for the Day (GFD)
A Good for the Day order remains active until the end of the trading day and either it is filled within the trading day or it is canceled at the end of the day.
■ In the case of 24/5 markets such as the Foreign Exchange, the end of the trading day is determined by the server-time of your broker.
(4) One-Cancels-the-Other (OCO)
The one-cancels-the-other order includes multiple trading orders. This mixture of orders may involve two entry orders or/and stop-loss orders. When one of these trading orders is filled then the other order is automatically canceled. For example, let’s say you want to trade an important price breakout but you are not sure that it will actually occur. In that case, you place a Long and a Short order at the same time. If the Long order is filled then automatically the Short order is canceled and vice versa.
(5) One-Triggers-the-Other (OTO)
The one-triggers-the-other order is the exact opposite order than the One-Cancels-the-Other. You place again two orders. If one of these two orders is filled then another order is triggered and filled too.
(6) Stop-Loss Orders
In general, a stop order is an order type to trade the market at a predefined level. A stop-loss order protects your capital by limiting the loss potential of any trade. For example, if the important news is about to be released by the FED and you are long on EURUSD you want to limit the impact of news on your trade. This type of order is extremely important especially for traders who are using high capital leverage. These are some general guidelines when using a stop-loss order.
■ Prefer to place wide stops (not too close), especially when trading in volatile markets
■ Avoid times of news-releases
■ Adjust your stops according to technical analysis and pivots
(7) Trailing Stop Orders
A Trailing-Stop order is similar to a common Stop-Loss except the fact that it is not a fixed-price order. A trailing stop is dynamically changing according to the current market conditions. A trailing stop will automatically close any trade if the price moves unfavorably by a prespecified distance. For example, you can place a 21-pip trailing stop-loss. That means that any time the market moves unfavorably 21 pips your trade will be closed automatically. This is particularly important for traders who want to follow a strong trend with unlimited profit potential and limited loss potential. This order type secures your profits at any time and it is very useful for swing-traders.
(8) Take-Profit Orders
A take-profit order is an order that closes a trade with a predetermined profit. If the price of an asset reaches a pre-specified rate then this order automatically closes your open position. You should place a Take-Profit order wisely, according to the current market conditions.
■ Forex Trading Orders
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