There are many types of orders to help traders execute their strategies smoothly. Market orders help traders place orders at the current price in the current moment. Limit orders help traders buy or sell from specific price points. Buy Stop and Sell Stop orders help traders trade breakouts effectively.
Buy Stop definition
A Buy Stop order is a pending order type. It’s intended to buy a financial product at a specified higher price. If the price doesn’t reach the higher target, the order doesn’t get executed.
Why is understanding the Buy Stop important for traders?
- Buy Stop is just another order type that can help automatically place orders at specified prices.
- Utilizing Buy Stop orders in some cases can improve trading results.
- You might develop or use existing trading strategies where Buy Stop orders play a vital role.
- Placing Buy Stop orders is easy and the concept is easy to grasp.
Thorough Buy Stop Explanation
Buy Stop orders are pending order types that get executed similarly to market orders once the price reaches the predetermined higher price.
Why would anyone want to buy something at a higher price than it’s currently traded? Well, the answer is simple, Buy Stop helps traders join an uptrend right from the start, from the breakouts.
Example of Buy Stop in Forex
The order is executed automatically by trading platforms once set. As already mentioned, if the price fails to break the resistance, the order will not get triggered. And you will need to cancel the order manually in that case.
Buy Stops are usually utilized at significant levels, where prices have tested the levels multiple times. The more touching points the resistance has, the stronger it is and there’s a high chance that breaking it will result in sharp price moves.
Buy Stop order can be used when trading the market news. However, trading news using the Buy Stops might not be for everyone as it requires speedy decision making and execution.
Stop Losses can be placed below the breakout levels. However, Take Profit targets are unspecified and depend on the context when using the Buy Stop orders.
FAQs on Buy Stop in Trading
What does the Buy Stop order mean?
Buy Stop order is an order type that enables traders to buy securities at predetermined prices. An obvious downside of the order type is that the price might never reach the target and the order will not be executed.
When should a Buy Stop order be placed?
Generally traders place the Buy Stop orders outside the resistance lines. The order types help traders automatically buy a security whenever breakout occurs. Moreover, short sellers can protect themselves from unexpected price hikes by placing the Buy Stop orders.