A disciplined approach to trading is forming a trading plan beforehand or knowing your exit point before you enter a trade.

Executing a trade is a different story. A plan may exist, but its execution may change the outcome significantly. As the currency market ranges very often, inexperienced investors end up being caught in choppy market swings. In other words, the robots or trading algorithms will make sure to break the previous high and the previous low (where retail investors likely place stop orders) before reversing the price action bank to the range.

One way to avoid being trapped in ranges and simultaneously keep a disciplined approach to trading is to use pending orders. There are four types of pending orders offered by the MT4 platform: buy limit, buy stop, sell limit and sell stop.

Before continuing, keep in mind that all four are pending orders. This means that the trading platform will activate them only if the price reaches a specified level.

Buy Stop

For example, if an investor is bullish regarding the EUR/USD pair and wants to buy, they may do so at market (the buying takes place at the current market price) or use a pending buy order. If an investor is bullish and/or wants to avoid ranges they may place a buy stop order to be executed when the range breaks higher. If the price goes higher, the trading platform will automatically activate it.

Sell Stop

In sharp contrast, selling from lower levels than the current market is done using a pending sell stop order. The market must fall before such an order is triggered.

Buy Limit

Some investors, especially the ones riding bullish trends, like to wait for a dip before going long. As such, they place pending buy limit orders to buy when the price falls to a support level (e.g., moving average). If it happens, the market will execute the order, if not, the investor can change or cancel it at any time.

Sell Limit

The opposite happens when selling is intended from higher levels than the current price action. Depending on the technical analysis strategy, or simply in reaction to the news, investors may use pending sell limit orders to enter on the short side, but at a higher price than the current price.

The beauty of pending orders comes from the discipline they bring to trading. Pending orders prevent investors from overtrading, as they only trade if the market fulfills certain conditions, which in turn also prevents unnecessary costs associated with trading too often.

Another type of order is the “trailing stop order”, although it doesn’t come with the default settings in the MT4 platform. Such an order raises or lowers a stop in a bullish or bearish trend, effectively trailing the market, hunting the best possible exit.

Custom indicators make it possible to “import” orders like the trailing stop order into the MT4 platform.

Take-aways:

  • Pending orders encourage a disciplined approach to trading.
  • Buy limit and sell limit means to buy from lower levels and sell from higher ones respectively.
  • Trailing stop orders trail the market for the best exit, to make the most of a trend.
  • Pending orders avoid unnecessary costs associated with over-trading financial markets.