Learning About Stop Entry FX Orders

FX

A trader needs to use the full range of tools made available to him by his forex brokers if he is to truly succeed in the FX market. Unfortunately, one of the reasons why so many traders drop out of the race for riches is that they do not understand the use of various orders.

For instance, most traders know how to use the basic market orders but they never learn about the more advanced orders like stop entry orders. Stop entry orders can be very useful for specific situations in the FX market but you would only be able to use them if you understand them properly. Consider the following.

The Two Types of Stop Entry Orders

If you research stop entry orders, you will find that there are two types that you can use. The first is the buy stop entry order and the other is the sell stop entry order.

Stop entry orders are very useful because they will allow you to either buy or sell a particular currency pair when its rate passes a predefined point. These orders are a type of pending order that can remain active in the FX market indefinitely. However, you can define when they will expire as well.

You will use the buy stop entry order when you want the system to buy a particular currency pair after its rates reach a specific point. The opposite is true for sell stop entry orders where you will be telling the system to sell a currency pair when a certain rate level is reached.

Benefits of Using Stop Entry Orders

The biggest benefit of using stop entry orders is that they allow you to make a trade in the FX market exactly at the point that your forex charts tell you to enter at. This is a major benefit because it helps you maximise your returns while minimising your losses. More definite entry and exit points in the FX market can help you greatly in increasing your profits.

Stop entry orders are nearly perfect for catching breakout points in charts. For instance, if a currency pair is ranging and you think that it will break out of its resistance then you can use stop entry orders to catch this breakout.

Flaws of Using Stop Entry Orders

There are certain flaws of stop entry orders as well, which you have to be mindful of while you use them. The most obvious flaw is that rates in the FX market ebb and flow instead of following linear patterns. This means that, sometimes, if you are not careful then false conditions could trigger your stop entry orders.

For instance, if there is a false breakout then the stop entry order will be triggered. If the rates fall back into their range after the false breakout then you would actually incur a loss.

Using stop entry orders is definitely something you should consider because they can prevent you from missing out on key rate movements. However, at the same time, you must try to be more specific in your FX market assessment.

 

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