Stop order/Limit order

[LiboNZT]

I just finished reading an article which explained various orders like limit orders and stop orders. I read somewhere that stop orders and not only used to minimize your losses but they are also used in order to ENTER a trade. How is it possible to enter a trade with a stop order? Doesn't a stop order require an open position in order to be executed? If so, how can an order which only can exist as a position ''terminator'' can actually open a new position?

As it comes to limit orders I have a few questions too. First, the way I get it a limit order is an order which does exist for a fixed amount of time. There has to be a timeframe where if the price hits designated one, the order gets executed and when a fixed amount of time passes and the price fails to hit the order price, the order simply gets scrapped, right?
Next, I'll put forth a little example. Let's say the ask price is at 50.00 and we set a buy limit order at 52.00. When the price hits 52 our order becomes a long position, right? What happens if I set the price lower, let's say 48? In that case, isn't it possible that our long position is against the trend ( since the price has fallen from the 50 lvl)? What is the use of a buy limit order at a lower market price or a sell limit order at a higher market price since it's obvious that we might trade against the trend? Sorry for the number of questions!

 

[rathcoole_exile]

Let's say the ask price is at 50.00 and we set a buy limit order at 52.00. When the price hits 52 our order becomes a long position, right?

you've just given a perfect example - of a STOP BUY entry
A Stop is used to enter a Long at a price higher than current, ie to capitalise on Momentum/Breakout

What happens if I set the price lower, let's say 48? In that case, isn't it possible that our long position is against the trend ( since the price has fallen from the 50 lvl)? What is the use of a buy limit order at a lower market price or a sell limit order at a higher market price since it's obvious that we might trade against the trend? Sorry for the number of questions!

If you set a Buy order below current price, that is a LIMIT order.
Yes, you are correct that it seems that you're waiting for price to go in the 'wrong' direction before initiating your Long.

But some people, most people, are greedy and try to squeeze every last cent out of a trade, so instead of saying to themselves
"price is at 50, I want to wait for confirmation of a move before getting in Long at 52", they think "i want to grab an extra couple of points, so will only be happy to buy at 48, even though in order for that to happen Momentum must be carrying price AWAY from the direction I want"

I only use STOP entries.

 

[rathcoole_exile]

I just finished reading an article which explained various orders like limit orders and stop orders.

I think you need to re-read that article several times, or do more reading on the subject.

It's not rocket science, but can take a while to get your head around it; and you are obviously still lost

 

[rathcoole_exile]

Stop Entries are also very good for bracketing a period of consolidation -
in your example if Price had been fluctuating between 49, 50, 51, 50, 51, 50, 49, 48.5, 49, 50 etc for a while, you can set both a Buy Stop at 52 and a Sell Stop at 48 to catch any eventual breakout.

Of course not every breakout will work, so the other, unused Stop Entry, could automatically become your Safety Stop, in the manner that you already understand Stops

 

[DionysusToast]

Easiest way to remember....

Limit orders - trade at a better price than current
stop orders - trade at a worse price than current

 

[rathcoole_exile]

Easiest way to remember....

Limit orders - trade at a better price than current
stop orders - trade at a worse price than current

that's a very negative way of looking at things Pedro, the glass isn't half empty, it's half full !!

 

[LiboNZT]

Ok I think I got this, rathcoole's post made it somewhat clearer to me. Seems like I need to delve a little deeper into the matter..

 

[bigmistake]

Easiest way to remember....

Limit orders - trade at a better price than current
stop orders - trade at a worse price than current

Perfect in one shot It's always in my head

 

[Shakone]

.

 

[timsk]

Hi LiboNZT,
Welcome to T2W.

Out of interest, was the article you read this one by any chance: What's the difference between Stop Loss and Limit orders? If so, perhaps I need to tweak it a little to make it clearer!

Let's say the ask price is at 50.00 and we set a buy limit order at 52.00. When the price hits 52 our order becomes a long position, right?

Yes, it becomes a long position but, just to emphasize the points made by r_e and DT, the order type you've described here is a stop buy order, not a limit buy order. Limit buy orders can not be placed above the current market price and, conversely, limit sell orders can not be placed below current market price.

If you have any further questions on this subject - just ask. But it would be great if you could do it on the FAQ I've linked to, as other members may be interested in the questions and answers.

Tim.

 

[LiboNZT]

Hi LiboNZT,
Welcome to T2W.
Out of interest, was the article you read this one by any chance: What's the difference between Stop Loss and Limit orders? If so, perhaps I need to tweak it a little to make it clearer!
Tim.

Yeah that was the article but after some more reading on the subject it seems like I got this for now. Thanks for the help guys!

 

[v8dve]

Hi, was researching something and stumbled on this thread. Hope its where I need to ask some questions. I've been using the Interactive Markets platform for a few months now and have have just discovered that their Stop/Limit orders cannot be used on specific open trades. ie if you have say two crude oil positions open and one is in profit and one is in loss. The Stop/Limit trigger will only work on a first in / first out basis, so if your profit was on the second trade, tough the loss position will be triggered. As outlined here from Interactive markets reply when I asked the question...

"Our platforms work on a First-In-First-Out basis, so although you can close the positions manually by closing at market, this will not be the case with the OCO orders. The stops/limits are not linked to the specific order that you have placed on the chart and will just close out the first trade you placed"

My question is this, do most platforms work like this or is it just IM?

It seems crazy to me that other than monitoring 24hrs I can only guarantee a stop/limit working in profit is to do it manually.

Any help really appreciated, thanks guys

 

[rathcoole_exile]

in my experience, most platforms operate the same way you've described