The simple automatic instruction can help traders achieve reasonable strategies
What is a spot-limit order?
A stop-limit order is a bundle of stop order and limit order that is commonly used in the stock and forex market.Simply put, a stop-limit order allows one to predetermine at what price a buy/sell order can be executed (stop order) and the maximum/minimum price one wants to buy/sell (limit order).
What benefits the stop-limit order bring?
1. It is automated and saves your time from monitoring
Like all other algo orders, the execution is fully automated. After pre-setting the parameters of a stop-limit order, it will execute automatically once the requirements are met. As such, traders are freed from keeping checking market conditions to place orders at the right time.
2. It executes your orders correctly
Stop-limit order will be triggered and executed at the pre-determined price users set by the system. As long as the data is entered correctly, the system can help to eliminate human error when executing designated trading strategy.
3. It rules out the impacts of human emotions
Knowing how to calculate stop-limit is important, but users exit may end up being emotion-based. One’s emotion may easily take over the reasonable plan when the market is moving against its position, even though there is no price action-based reason to exit. By using stop-limit, rest assured that the designated trading strategy is carried out without interference.
How to use
Please refer to some scenarios that may take advantage of stop-limit order to achieve specific trading targets.
Case 1 (Close short stop-limit):
One can setup take-profit for short contracts with the opposite.
Case 2 (Close long stop-limit):
Is stop-limit suitable for everyone?
While every trader is unique in terms of trading strategies, risk tolerance, and investment goals, there are several questions to ask to see whether the stop-limit order can facilitate your trades.
Pursuing as long-term trader?
Opposite to day-traders, long-term traders focus on long-term growth of value instead of active trading for arbitrage. Looking for longer-term market trends, could get frustration to exit early at a stop-limit target when a favorable trend is still developing.
Is the market ranging?
When the market is ranging, a properly targeted spot/limit may help to take reasonable profit. In a ranging market, the price range of an asset is often bounded within the resistance and support levels. In such case, buying low in the range, a stop-limit at a slightly higher price may help to take profit before the market price retraces and falls below certain buying level.
Don’t let greed eat the gain
Even though the stop-limit order can minimize human interference during the trade, the entry and exit strategy, such as the target price, must be placed at a logical level. Users should always be well-informed and fully aware of price signals of the current market before placing any orders.