EURUSD 1.1787 USDJPY 112.14 USDCAD 1.2774 EURCZK 25.557 USDCZK 21.677 EURPLN 4.2304 USDPLN 3.5887
EURUSD 1.1787 USDJPY 112.14 USDCAD 1.2774 EURCZK 25.557 USDCZK 21.677 EURPLN 4.2304 USDPLN 3.5887

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Conditional orders allow one to react automatically to several possible scenarios of future development of a situation on the market

Rule of thumb

Limit orders are more suitable for markets that are expected to be trading in a narrow range, whereas conditional stop orders allow one to take advantage of possible break-outs

Conditional orders can be of interest whenever the trader has a specific expectation in respect to the future development of  a situation on the market. In general, limit orders are more suitable for  markets that are expected to remain stable, whereas stop orders allow potentially to take advantage of a possible break-out from a specified range.

 

Conditional limit orders (Buy Limit, Sell Limit)

Let us assume that the trader is looking at  a market that remains in a narrow horizontal trend, and expects the situation to remain stable for a while. It may be observed on a chart that the price on the USDCHF market is oscillating in the range between 1,000 and 1,0200 levels. In that case, one may consider the conditional orders that will allow one to take advantage of this situation and either:

  • Buy when the market  is in the lower part of this range, using the Buy Limit order, for example at 1,0010, and/or
  • Sell when the market  reaches the upper part of the range, using the Sell Limit order, for example at 1,01180

 

Basically, Buy Limit and Sell Limit conditional orders can be considered whenever one expects the market to make a temporary move in one direction (down – in the case of Buy Limit, and up – in the case of Sell Limit) and then return to the previous price levels.

 

Conditional stop orders (Buy Stop, Sell Stop, Buy Stop Limit, Sell Stop Limit)

Stop orders are aimed at  taking advantage of a potential break-out from a consolidation range. According to the technical analysis principles, the longer the consolidation lasts, the stronger the potential market movement can be after the breakout. While it sounds promising, the question remains, in which direction the breakout will go ? In order to take advantage of such movement using the conditional orders, it is possible to set them in  both directions.

 

How does it look in practice? Let us assume that the GBPUSD market remains within the range of 1,53300 and 1,54030 levels, and the trader expects it to break out of the range anytime soon. The direction of  future movement is unknown, however it is expected that  once the market will break out, it will be  the beginning of a new trend and the movement will be continued. In that case the trader may consider:

 

  • Buying once the market  rises above the 1,54030 level, by setting a Buy Stop order at a price of 1,54100 (for example), and expecting the move up to be continued.
  • Selling once the market  falls below the 1,53300 level, by setting a Sell Stop order at a price of 1,53000 (for example), and expecting the move down to be continued.

 

Basically, the trader can be interested in the Buy Stop and Sell Stop conditional orders whenever he/she expects the market to break out of the current price range, and continue the movement in that direction. Additionally, in a case where the projected scenario assumes that immediately after the break-out the market will retrace only to continue the movement afterward, the Buy Stop Limit and Sell Stop Limit orders can be considered.

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