What Are Market Orders? Lets explore this amazing time saving tool here.
Market Orders are an invaluable tool to the trader who is sure of their analysis. It is a way of setting a trade to execute when the market conditions finally catch up to what the trader has determined through their analysis is very likely to take place.
There are a variety of market orders available to use depending on the circumstances you find yourself in with your trading. Let’s have a look at them here:
Exit Market Orders
Stop Loss and Take Profit
These are the essential automatic actions that you must set on every single trade. As the names would indicate, the Stop Loss will close your trade in loss, a pre-determined amount of loss you have decided you are comfortable with prior to opening the trade. To calculate this loss, see Risk Reward Ratio.
Similarly, the Take Profit level is the target level that you determined prior to opening the trade. It will automatically close the trade as soon as your target price has been hit by the asset, even for a millisecond. It is a much more accurate way of trading than using your delayed ‘human’ speed reactions. It is also able to work perfectly even when you are away from your screens etc.
Setting these levels is done by using the aforementioned Support and Resistance levels. This is done by looking at your analysed charts to determine where these levels are. This is a visual way of deciding levels and is and is effectively the best way of being able to a realistic idea of how many pips the asset is likely to move, in what period of time.
It is essential to use the pre-determined stop loss level calculated as a ratio of expected profit. Please note however, this ratio ca be altered depending on market conditions. By using this numerically based system of predetermined decisions, you are then able to analyse your profitability by comparing apples with apples as it were. You can then tell month on month, and year on year what your performance is like, if you are improving, where your weak spots are etc.
This is another kind of Stop Loss, however, in this instance, it moves in relation to the price fluctuations. This means that the stop chases the price, so that, once you are in your trade, the stop sill always stay a set amount of pips away. This means that no matter what happens, you will never be more exposed than you had initially calculated to be, and at the same time, you can protect your profits once the stop moves beyond your entry point.
Entry Market Orders
Entry orders are an incredibly useful tool that all traders need to become comfortable with using regularly.
This range or market orders can be a little confusing at first glance until you have used them time and time again, at which point they will seem like second nature.
Market orders are manual execution of the order on your software by entering all the specific trade information then selecting Sell or Buy as required. Can result in slippage which occurs when the liquidity on an asset isn’t sufficient to fill your order at the requested price, so it is filled at the soonest price with liquidity.
Are future orders which will be automatically filled once the price reaches the set entry point. There are six varieties of Pending Order:
A Limit Order is set to buy or sell an asset at a set price. Once the asset reaches the set price the order will be filled.
- Buy Limit Order: A Buy Limit Order is an instruction to buy at a set price or lower.
- Sell Limit Order: A Sell Limit Order instruction to sell at a set price or higher.
- Stop Orders: Sell Stop Order, or, Stop Buy Order, is executed AFTER the specified price has been reached. The Buy Stop is placed above the market, and the Sell Stop is placed below the current market.
One Cancels the Other
OCO is a combination of two pending orders which are set up to account for either outcome of a trading situation. In the event that one of the orders is filled, the other is deleted, or cancelled, as it is no longer needed given the movement of the asset.
Market Orders Summary
After reviewing the variety of Market Orders available to use in your trading, you should now be able to confidently set and forget, as they say, your entry and exit positions on any trade for any asset.
Check out our other post for more Defensive Trading check here.
As always, if you have any questions, we would love to hear from you in the comments box below. Happy trading!