Day trading and when to use it
Market Order
A market order is the simplest type of order. There are market orders for buying and market orders for selling.
A market order gives you the available price in the market. For example, if you buy using a market order, you will get the available price from those who wish to sell to you. If you sell using a market order, you will get the available price from people who want to buy from you.
Market orders are useful when you need to enter or exit a trade quickly, such as when the price is moving fast.
The problem with market orders is that you do not know the exact price at which your buy or sell will be executed. If you buy an asset with a tight bid/ask spread, you will typically end up paying the ask price, and when you sell, you will end up receiving the bid price. In markets with low volume or a large bid/ask spread, you may end up buying or selling at a price that is very different from what you expected.
Limit Buy Order
A limit buy order is a buy order placed below the current price. The order is filled only at or below the limit price.
The attached chart shows an example of this. A limit buy order is placed below the current price of the EUR/USD currency pair. The current price is 1.08936. The limit buy is set at 1.0775 (dashed lower line). Therefore, the price must drop to 1.0775 (or below) to fill the buy order.
Limit buy orders are also used as targets to exit a profitable short trade.
* “Filling” means that your order has been completed, for example, if you place an order to buy 100 shares at a specified limit price of $10, and someone sells you 100 shares at $10, then your order will be completed.
Limit Sell Order
A limit sell order is a sell order (or margin sell) placed above the current price. The order is filled only at or above the limit price.
The attached chart shows an example of this. A limit sell order is placed above the current price of the EUR/USD currency pair. The current price is 1.08971. The limit sell is set at 1.09600 (dashed upper line). Therefore, the price must rise to 1.09600 (or above) to fill the sell order.
Limit sell orders are also used as targets to exit a profitable long trade.
Stop Buy Order
A stop buy order is a buy order placed above the current price. The order is filled only at or above the stop price.
The attached chart shows an example of this. A stop buy order is placed above the current price of the EUR/USD currency pair. The current price is 1.08991. The stop is at 1.0918 (dashed upper line). Therefore, the price must rise to 1.0918 (or above) to fill the buy order.
This order can be used to exit a short position.
Stop buy orders operate like market orders once the stop buy price is reached. Therefore, they are useful for use as a stop loss in short positions when you need to exit because the price is moving against you. They are also useful for buying breakouts above resistance levels, but you cannot be sure of the exact price at which your buy will be executed.
Stop Sell Order
A stop sell order is a sell order placed below the current price. The order will be filled only at or below the stop price.
The attached chart shows an example of this. A stop sell order is placed below the current price of the EUR/USD currency pair. The current price is 1.08978. The stop is at 1.0868 (dashed lower line). Therefore, the price must drop to 1.0868 (or below) to fill the sell order.
It can
Using this command to exit a long position.
Stop loss orders work like market orders once the stop sell price is reached. Therefore, they are useful to use as a stop loss in long positions, when you have to exit because the price is moving against you. They are also useful for selling/short selling on breakouts below support, but you can’t be sure of the exact price at which the sale will be executed.
Stop Limit Buy Order
A stop limit buy order is very similar to a stop buy order, except it does not work like a market order. A stop limit buy order will only be filled at the limit buy price or lower.
If you want to buy when the price rises, a stop limit buy order prevents you from paying a higher price than expected; a stop buy order does not offer this protection.
A stop limit buy order is extremely useful for buying when the price exceeds a certain level (such as a resistance level) but you only want to buy at a specified price or lower when that event occurs.
Stop Limit Sell Order
A stop limit sell order is very similar to a stop sell order, except it does not work like a market order. A stop limit sell order will only be filled at the equivalent price of the limit price attached to the order or higher.
If you want to sell when the price drops, a stop limit sell order prevents you from selling at a lower price than expected; a stop sell order does not offer this protection.
A stop limit sell order is extremely useful for selling when the price breaks below a certain level (such as a support level), but you only want to sell at a specified price or higher when that event occurs.
The Final Word on Day Trading Order Types
It may be difficult to get used to all trading orders at first, and there are more types of orders than that! Placing the wrong order type when money is on the line can cause significant problems. The best way to get accustomed to these orders is to practice. Open a demo trading account and try them all out, see how they work and how you will integrate them into your trading strategy.
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Source: https://www.thebalancemoney.com/making-sense-of-day-trading-order-types-1031387
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