Stop Order
Stop Order is an order that is executed when the price moves to or goes past a certain price, then the order is executed to open or close the order.
A Stop Order is executed when the price reaches or goes past the specified price then the order is converted to a Market Order and buy or sell at the best price at that moment. Most of the time, investors use this order to buy or sell by anticipating that when the price moves to the stop order placed, the price will continue to move in that direction. but Stop Orders are also used in terms of retaining profits or preventing losses from trading as well.
There are 4 types of Stop Orders:
- Buy Stop Order = Expect the price to continue moving up from the entry point. Therefore, the buy order is placed at a price higher than the current price.
- Sell Stop Order = Expect the price to continue moving down from the entry point. Therefore, the sell order is placed at a price lower than the current price.
- Sell Stop Limit Order = When the price moves up from the trade entry point, this order will be set below the current price but above the trade entry price. to prevent the price from reverting down below the entry price.
- Buy Stop Limit Order = When the price moves down from the trade entry point, this order will be set above the current price but below the trade entry price. to prevent the price from returning higher than the entry price.
Advantages of Stop Orders
Helping investors not have to keep an eye on the chart all the time. and do not miss an opportunity to enter a trade or profit protection or cut losses from trading, and also help in managing emotions from trading.
Disadvantages of Stop Orders
There is a chance that the order will not be opened or closed. This was due to the slippage of the chart at the time, which could be caused by the violent price movement, due to the announcement of important economic news. That means investors may lose the opportunity to enter a trade or lose the opportunity to take profits or cut losses. Perhaps it is when the reverse price hits the Stop Limit Order and then returns to its original direction, causing investors to miss out on the Let Profit Run.