Pending orders in trading
Recently, I found an interesting article that was telling about the proper way to define the best moment to enter the market. The main idea is to open a position in case when all trading signals are available, and I agree with it in general. However, I think that one has to open positions only at the time of the signal formation and not just because such signal is already available.
In case when you open your terminal and choose an asset, and you see the operational confirmation of the trend or the correction caused by trading signals, it doesn’t mean that you have to open a trade (http://investment_terms.enacademic.com/14080/Trade_Signal). That means the signal has already been formed and used. That’s why you won’t get any profits by trading with it.
That’s a very popular mistake among the beginners in theFIX APIForex market. You need to know the moment when you have to open a position more than clearly. It includes both breakdown and recall of the market. You can solve this situation only by using the pending orders.
Pending orders is the method of trading transaction execution based on the future values of financial assets. In case you are going to buy and sell assets using the current market price, your transactions will be executed using the current values. In case if you are waiting for the breakdown, you can use pending orders, setting specific prices, which can be higher or lower than the breakdown level. Such method makes it possible to enter the market without continuous and uninterrupted participation of the FIX API trader.
Main types of pending orders:
Buy stop –allows opening a trade using the future price growth. For example, when rates are showing significant growth, and the trader is waiting for an additional jump after the formation of the technical level or the breakdown, they are able to create buy stop above the upper level of the rates, thus the trade will be executed when the price of the asset starts to grow, reaching the indicated level. Inotherwords, theFIX API traderexpects the subsequent growth.
Sell stop –allows opening trade using the future price reduction. For example, when current rates are decreasing, and the traders note signs confirming further reduction, they are able to create pending orders with the lower price that is usually located beyond the local minimum. Thus, when the rate will reach the selected level during the process of price reduction, a selling trade will be automatically executed for the trader.
The first two types of pending orders are the perfect solution for those asset managers trading using the level breakdown. In such situation both buy stop and sell stop are the main elements for such breakdown trading.
Buy limit – is a pending order that allows buying an asset after the reduction or correction of the price. For example, when rates have reached the level of resistance and bounced from it, but the trader is waiting for the further growth after a small correction. Insuchsituationthetraderisabletocreatethebuy limit order at the lower price (usually at the Fibo level), while the price has to continue its growth after reaching the mentioned level.
Sell limit –is a pending order that allows selling an asset after the growth or correction. We can use a similar example for this case. Let’s say that rates are growing and approaching the resistance level. The trader can use the current level to create an order to open a short position when it’s reached. In other words FIX API trader is waiting for the bouncing from the current level, followed with the reduction of the price.
Such pending orders have to be used at the moment of the trading signal formation. The moment when rates will cross the indicator or break through the level, will be the wake-up call. The trader will be aware of that breakdown and will know how to act. After creating a pending order and setting the limiting levels for losses and profits, one can continue with the analysis of different assets.
The pending order is an efficient tool even for the algorithmic trading (http://forexzzz.com/product/forex-zzz-lock-arbitrage/). EvenFIX APIsupports pending (delayed) transactions, which are used by trading robots in order to execute trading order even more precisely.