Pending orders are a simple way to automate your trading. They allow you to open and close trades according to pre-set parameters. Unlike market orders, which are executed immediately, pending orders are triggered when the price reaches a predetermined price level.
This is convenient because you can trade regardless of whether you monitor the price chart 24/7. You can plan your trades in advance, avoiding emotional decision-making. You can achieve considerable success in trading with different types of pending orders. This article examines the main types of pending orders and strategies for using them.
The article covers the following subjects:
Major Takeaways
- A pending order is an instruction to a broker to execute a trade (buy or sell) on a certain asset when its price reaches a particular level. You specify the price and volume, and the broker executes the order as soon as the market price reaches the indicated level. This allows you to automate trading and avoid the need to continuously monitor price charts.
- There are several types of pending orders forex: Buy Limit, Sell Limit, Buy Stop, and Sell Stop. Stop Loss and Take Profit orders are also considered pending orders.
- Pending orders are automatically triggered when the price reaches a selected level, while market orders are executed immediately at the current price. The choice between these two types of orders depends on your trading strategy and preferences. Sometimes, you want to execute your trade immediately or make a trade at a more favorable price later.
- From a strategic standpoint, pending orders are often placed at support and resistance levels, with the expectation of a price breakout or reversal. For example, a Buy Stop order can be placed above the most recent high to open a trading position on a breakout, and a Sell Limit order can be placed near the resistance level if a rebound is projected. In addition, it is essential to employ effective risk management strategies and take market volatility into account.
What Is a Pending Order in Trading?
A pending order in Forex trading is an instruction to a broker to open a position (buy or sell) when the price reaches a certain value. This is convenient for those who do not want to keep a constant eye on the currency pair chart. There are different types of pending orders:
- Buy Limit order: buy lower than the current price.
- Sell Limit order: sell higher than the current price.
- Buy Stop order: buy higher than the current price if the price continues to rise.
- Sell Stop order: sell lower than the current price if the price continues to fall.
- Stop-Loss order: close a trade if it goes into the red.
- Take-Profit order: close a trade at a profit.
Orders can be used in different strategies, for example, to trade breakouts or rebounds from support or resistance levels. It is important to thoroughly examine the market, find an optimal entry point, and develop an exit strategy before using pending orders.
Types of Pending Orders in Forex Trading
In Forex trading, you need to constantly track price movement. Here is where pending orders come in handy.
Buy Stop Order
A Buy Stop order is an instruction for your broker to buy an asset at a price above its current level. It is used when a price increase is expected after a resistance level has been broken through. It is better to use this order when opening a position after a trend direction has been confirmed.
Buy Limit Order
A Buy Limit order is a pending order to purchase an asset at a price below the current market price. It can be used when the price is expected to decline to a support level and then rebound.
Sell Stop Order
A Sell Stop order is an instruction to execute a transaction at a price below the current rate. This order comes into play when a decline is anticipated after the support level has been violated.
Sell Limit Order
A Sell Limit order is an order to sell an asset at a price that exceeds the current price. It is used when the price is expected to rise and rebound from the resistance level.
Stop-Loss Order
A Stop Loss is an order to close a trade if the price moves against the predicted direction, thereby reducing potential losses.
Take Profit Order
A Take Profit order closes a winning trade when the price hits the specified profit target. It is needed to lock in profits timely.
Pending Orders vs Market Orders: Key Differences
There are two types of orders used to trade in financial markets: market orders and pending orders. They differ in how they function and in which scenarios they are appropriate.
A market order is executed immediately at the current market price. They are the fastest way to enter or exit a trade, but you cannot choose the exact price to open and close your trade. You agree to execute your trade at the best available price. This can be risky if the market is volatile, as prices can change in a matter of seconds.
A pending order is placed at a specific level at which you want to open or close your trade. It is not executed immediately; it is triggered when the price reaches the level you specified.
The main difference lies in your ability to choose the order execution price and the speed at which your trade is opened. Market orders are executed instantly, but there is no guarantee that your trade will be opened at the price you want. Limit orders allow you to choose the price you want, but there is no guarantee that your order will be executed if the price does not reach this level.
How to Use Pending Orders Effectively
Pending orders in Forex are powerful tools that can be used to optimize trading and apply various strategies:
- Key level breakout. Place a Buy Stop above the resistance level and a Sell Stop below the support level. If the price breaks through a key level, it will likely continue to move in the same direction.
- Trading pullbacks. Set a limit order to buy at a level below the market price or sell at a level above it, expecting a rebound. It is important to correctly determine the support and resistance levels and understand how strong the trend is.
- Trading on news. Place pending orders before the important news release. As a rule, quotes face increased volatility in response to the news and economic reports, and the price usually triggers one of the placed orders.
- Order grid. Place several Buy Limit or Sell Limit orders at equal intervals. This way, you can earn even on small price movements.
- Combined pending order strategies. Use several pending orders at once to enter a position if certain conditions are met. For example, you can place a Buy Stop order when the resistance level is pierced on increased trading volume.
The main thing is to analyze the market, consider the risks, and set stop–loss orders to prevent losses. Try your hand at trading on a demo account first to understand how a trading strategy works.
Conclusion
Pending orders are an essential tool for seasoned traders. These orders can be used to automate trading and implement various strategies. If you understand how they differ from market orders and how to use them, you can improve your trading performance.
However, they require you to carry out technical analysis, adhere to risk management rules, and closely monitor market conditions. The LiteFinance trading platform offers a risk-free demo account to help you test, practice, and hone your trading skills.
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Pending Orders in Trading FAQs
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