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Tuesday, December 30, 2008

What are Stop Entry Orders?

Stop entry orders are market entry orders placed at set price levels. These orders utilize stops as a way to enter into a trade rather than exit a trade by locking profit or minimizing risk (stop-loss orders). Stop entry orders work just opposite to limit entry orders. They are of two types.
  1. Buy at Stop Orders: Here the buy orders are placed at set prices above the current market price. Buy at stop orders are executed when the price reach/break the set price (often a resistance level).
  2. Sell at Stop Orders: Here the sell orders are placed at set prices below the current market price. Sell at stop orders are executed when the price reach/cross the set price (often a support level).
Stop entry orders are practiced by traders following breakout strategies. Usually the orders are placed when the market is close to a breaking; and the price is expected to go up/down once it breaks a resistance/support level. Stop entry orders are widely used by forex traders, but also can be used to trade stocks and futures. Remember, stop-entry orders usually have greater risk associated with them than limit entry and stop-loss orders and the trader should be good in technical analysis to predict the trend changes and to set the stops.

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posted by Daniel Pipitone at 4:56 AM

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