The simple automatic instruction can help traders achieve reasonable strategies
OKEx launched algo orders on perpetual swap market on Aug 22, making them now available in both the spot and derivatives markets. Among a selection of algo orders, stop-limit orders are the new offering that enables traders to achieve trading targets and optimize their exit strategies.
What is a stop-limit order?
A stop-limit order is a bundle of stop order and limit order that is commonly used in the stock and forex market.
Simply put, a stop-limit order allows one to predetermine at what price a buy/sell order can be executed (stop order) and the maximum/minimum price one wants to buy/sell (limit order).
What benefits the stop-limit order can bring to you
- It is automated and saves your time from monitoring
Like all other algo orders, the execution is fully automated. After pre-setting the parameters of a stop-limit order, it will execute automatically once the requirements are met. As such, traders are freed from keeping checking market conditions to place orders at the right time.
- It executes your orders correctly
Your stop-limit order will be triggered and executed at the pre-determined price you set by the system. As long as the data is entered correctly, the system can help you eliminate human error when executing your trading strategy
- It rules out the impacts of human emotions
Knowing how to calculate your stop-limit is important, but your exit may end up being emotion-based. One’s emotion may easily take over his reasonable plan when the market is moving against his position, even though there is no price action-based reason to exit. By using stop-limit, you can rest assured that your trading strategy is carried out without interference.
How to use
Let’s look at some scenarios that you may take advantage of stop-limit order to achieve your trading targets.
Case 1 (Close short stop-limit):
The user opens a BTC short contract with an average price of USD 9,000. If the user wants to execute stop-loss when the market price rises to USD 10,000 and close the order at USD 10,010.
You can setup take-profit for short contracts with the opposite.
Case 2 (Close long stop-limit):
The user holds opens a BTC long contract with an average price of USD 9,000. If the user wants to execute stop-loss when the market price falls to USD 8,000 and close the order at USD 7,990.
When the BTC market price breaks above USD 19,250 and the user believes that it will continue to rise, he can open a long contract higher than the market price at USD 19,251.
When the BTC market price drops below USD 19,250 and the user believes that it will continue to fall, he can open a short contract lower than the market price at USD 19,249.
Is stop-limit suitable for you?
While every trader is unique in terms of trading strategies, risk tolerance, and investment goals, there are several questions you can ask to see whether the stop-limit order can facilitate your trades.
- Are you a long-term trader?
Opposite to day-traders, long-term traders focus on long-term growth of value instead of active trading for arbitrage. If you are looking for longer-term market trends, you may sometimes be frustrated when you exit early at a stop-limit target when a favorable trend is still developing.
- Is the market ranging?
When the market is ranging, a properly targeted spot/limit may help you take reasonable profit. In a ranging market, the price range of an asset is often bounded within the resistance and support levels. In such case, if you’ve bought low in the range, a stop-limit at a slightly higher price may help you take profit before the market price retraces and falls below your buying level.
Don’t let greed eat your gain
Even though the stop-limit order can minimize human interference during the trade, the entry and exit strategy, such as the target price, must be placed at a logical level. You should make sure yourself well-informed and fully aware of price signals of the current market before placing any orders.
Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involves significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.
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