The advantage of placing pending orders when trading in the market
When trading on the exchange, knowing how to set a pending order is a must. The main advantage of this type of order is considered to be that the broker will execute it in any case, even if the trader does not follow the market. The latter usually gives an indication when and how to set a pending order and makes a break in work without waiting for the end of the operation.
Let's take a closer look at what is a pending order, what are its types, the difference and their advantages with conventional orders, and how to actually trade pending orders.
The concept and essence of a pending order
So, in simple words, a pending order is a function or feature provided by a broker that allows you to set on the chart automatic opening of positions at any chosen price level at the moment when the current price at the market reaches this level. This, in fact, is the main difference from regular orders, because you can put a pending order at any level, and the price will reach this level and open a deal in the direction you want.
Like for a normal order, for a pending order you can set the take profit and stop lossThis will somehow protect yourself by preventing possible losses when the position on the order will be open. Trader's possibilities with pending orders are practically unlimitedThe main thing is to do it correctly, because some beginners simply do not know how to set a pending order in the market, and therefore do not do it.
Orders of this type should be set at the required distance from the current price, depending on what trading strategy rules you are using. In some circles there are many varieties of pending orders (different modifications and combined tactics of using them in the form of Expert Advisors or scripts), but in this article we will consider the four basic types.
Types of pending orders
№1. Sell Limit - are used for price rebound from the level set by the order with the opening sales pitch. A pending "Sell Limit" order implies that the broker will sell the currency when it reaches a higher price. It is clearer in the picture below.
№2. Buy Limit - for rebound of the price level from the level set by the pending order with the opening of purchase transactions. Traders use such a pending order to buy a certain amount of currency when its price falls to a certain level.
№3. Sell Stop - are used to break the price level from the level set by this order with a sell position. The installation of the pending order "Sell Stop" is used in order to sell the currency which will start to become cheaper. It is reasonable to use this pending order when there are assumptions that the price will decrease to some extent after the sale.
№4. Buy Stop - For a breakdown of the price level set by a buy order. This is the last type of pending order, by which the broker must buy a certain amount of currency when its price reaches a certain level.
The process of trading with pending orders
The trading with the pending orders itself gives the trader a kind of insurance that if the price does not go to the set pending position, turns around and sharply goes in the other direction, in this case the trader will only have to delete or rearrange the pending trade to another place, which would not be the case if the trader immediately opened a regular order. In this case his position was in drawdown (or even closed with a loss). And therein lies the main advantage of placing pending orders on the market .
For example, after you analyzed the market according to the rules of trading strategy, you saw that there was a specific signal to open a position to sell. You can immediately open a deal at the current market price or place a pending order for breakthrough i.e. Sell Stop at +15-20 points from the current price, thereby insuring yourself against a possible trend reversal or unpredictable noise.
As you can see in the figure above, the price made a correction upwards, not reaching the level of opening a sell trade, and only after a few hours (since the hour timeframe H1 in the figure) went in the desired direction for the trader.
In general, setting pending orders when trading on the market, gives time for breaks in work and an opportunity to rest, collect your thoughts. Also, they save from sharp price jumps to which a normal person simply cannot react.