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December 7, 2021

Pending Forex orders: looking to the future, making a profit

Pending Forex orders: looking to the future, making a profit

The professionalism of a trader is determined not only by the ability to quickly open or close a deal. The main thing is to be able to analyze the situation and understand where the price will move, when the trend unfolds, at what price level it is best to enter the market. To do this, you do not need to wait until the price reaches the calculated values; it is enough to set one of the types of pending orders.

Unlike orders with immediate execution (Instant/Market Execution), which are opened at the current market price, even if the slippage is taken into account. Pending Orders start working only when the price reaches a given level: for BUY it will be the ASK price and BID for SELL:

Pending orders in the MetaTrader terminal

The main advantages are immediately visible:

  • The stated price does not change even in case of a sharp change in volatility;
  • You can safely wait out the speculative market or, conversely, squeeze the maximum out of news trading;
  • Pending order is executed without delay (requites);
  • An ECN accounts, it becomes possible to open inside the spread;
  • Opening and closing take place automatically without the participation of a trader.

Types of pending orders

Orders are available in all trading terminals, for example, the MetaTrader platform, which is popular among Forex traders. There will be a separate chapter for Take Profit and Stop Loss orders as important elements of the money management system, and let's start with pending buy orders (BUY):

  • Buy Stop - a trade order to the broker to open a buy when the price reaches a specified level above the current one. The uptrend is expected to continue.

BUY Stop pending order

Example: correction on the downtrend with a transition to a sideways movement (flat). The trend can either continue or reverse. The magnitude of the correction in points indicates a high probability of a reversal. Set a pending Buy Stop. We remove the order when the flat continues or the downtrend resumes.

  • Buy Limit - a pending order is placed below the current quote, expecting to resume the upward movement.

BUY Limit pending order

Example: if we expect a reversal in the first example, here we see the first uptrend rollback. It is usually followed by a resumption of the trend; we set the Sell Limit below the current price. The forecast turned out to be correct, the trend continues. It is recommended to get additional confirmation from indicators or a trading signals service such as xSignals. After confirmation, we set the order below the current price by at least 10-15 points. If the order does not open within 2-3 candles, we remove it from the market.

If the calculated level of pending orders, for example, a breakdown of the local max/min is at quotes with the last digits 00 or 50 (round levels), it is recommended to reduce the standard lot size. At these "psychological" levels, market makers are often found turning the market against small players. If the transaction goes into profit, you can add volume.

The next two pending orders automatically open SELL:

  • Sell Limit – a sale is opened when a certain level is reached above the current quote. Pending order based on an uptrend reversal;

SELL Limit pending order

Example: the uptrend ends, the reversal begins. Two ascending candles indicate the first pullback. The uptrend has been long, buyers have almost no potential. High probability of downtrend continuation, set Sell Limit 3-5 points below the last up candle. It is recommended to set Take Profit at 20-30% of the previous trend. This is also a correct decision - at this level, the downtrend ended, the order was closed in profit.

  • Sell ​​Stop - a sell position is opened below the current price to continue the downward movement.

SELL Stop pending order

Example: approximately 20-25% of the total length of the uptrend has been completed. At this value, the first "stop" usually occurs, this can be seen by the flat in the figure. A reversal to the start point of the trend may begin, you can open a Buy Stop above the current price. The profit will be small, it is better to set a Sell Stop below the price and wait for the trend to resume. In the example, Take Profit in points is equal to the interval before the start of the flat. Then, after a big down candle, you can open another market SELL with manual transaction control. We close when the price reaches the level of the beginning of the previous uptrend.

Features of execution of Limit/Stop orders

Most orders are opened when the desired price level is reached, but in the case of NDD accounts (Non-Dealing Desk), this does not always happen:

  • The final price may differ from the stated one when the current volume of the available asset is insufficient to open a purchase/sale. 
  • The broker can cancel the order or execute it partially due to counter orders, so the strategy should assume that there may be an opening for the better or the worse.
  • In case of high volatility or low liquidity, there may also be problems with changing/deleting an order, especially in automatic Expert Advisors.

When placing a pending order along with a trend, look at its current "length". There are no such methods by which it is possible to predict the beginning and the knights of the trend with an accuracy of a point. But if the calculation shows that the trend has passed 55-60% of the potential length, it is recommended to place an order no more than 20-30 points from the current price.

Take Profit and Stop Loss as the main element of money management

The peculiarity of these orders: they also belong to the group of pending orders, but they do not work as separate instruments. Their values ​​are set only when opening a BUY/SELL deal:

  • Stop Loss (SL) - an order to the broker to close the current position when the specified loss value in points is reached. In other words, if the market has gone in the wrong direction, you can be sure that losses will not lead to a complete loss of the deposit
  • Take Profit (TP) - is a reverse pending order, when triggered, the position will be closed at the current profit level. Automatically locking in income is especially important for scalping and news strategies, where the desired momentum can last several minutes or even seconds. It is impossible to have time to close an order manually in such a short period

Together with the lot size, they represent the main elements of the money management system. Automatic fixation allows you to fully focus on planning a future deal, work simultaneously on several trading assets, and use advisors.

Take Profit and Stop Loss in the MetaTrader terminal

It is important to calculate the levels correctly. We follow the rules:

  • TP for purchases (BUY) must be above the opening price taking into account the spread. In this case, SL will be below it - we insure ourselves against a sharp downward reversal.
  • For sales (SELL), the reverse method: profit is fixed below the opening price, losses are higher than it.

The Take Profit and Stop Loss parameters can be changed at any time while the transaction is open or a pending order is not withdrawn.

TP installation variant:

  • Trending. Beginners are recommended to calculate the profit value by the width of the trend channel (ascending, descending, wide flat). Pending orders are placed on the support line after the second retest, the TP level is on the resistance line (the opposite border of the channel).

Take Profit on uptrend
  • By graphic patterns. Here it is necessary to define as accurately as possible the upper and lower boundaries of the new pattern. The indicator of opening a position will be a true breakout of the support level - set TP by the size of the pattern.

Take Profit by graphical pattern
  • By Fibonacci levels. Fibonacci trading is usually carried out mainly with intraday deals, preferably on the M30-H1 timeframe. We are working only in the direction of the current trend, and the most promising levels will be 23.6% and 38.2%. Longer-term orders and TP targets can be placed at 61.8% and further.

Fibonacci levels as dynamic Stop Loss

There may be a situation when the best option would be to close only part of the volume when the market reaches a certain calculated level with the expectation that the trend will continue. You can close the desired part either manually or divide the original volume into several deals.

Recommendations for setting Take Profit.

Profits are not losses, there are no strict rules. But two factors must always be considered when placing an order:

  • Strong supports/resistances and base points of graphical patterns give maximum profit, but it is better to fix profits for 5-7 points above/below the level. Do not forget that they are seen by market makers and brokers. The price may not reach the level of a few points, start a quick correction and most of the small players will close at zero at best. 
  • Check the broker's rules for automatic Take Profit closing. Perhaps not just a touch is required, but confirmation of the breakout by closing the next candle above/below the specified level. You should also take into account the size of the spread, if it is large, then the touch will not be guaranteed enough.

SL installation variant:

As practice has shown, with proper loss control, you can get stable positive statistics even when profitable transactions are less than 50% of the total. Basic options:

  • The starting SL is not installed. Losses are monitored visually or using Trailing Stop (see next section). This technique can only be used by professional traders on long-term deals and large deposits. Even among the, it is rare, beginners should always set SL even on intraday trades!
  • The Stop Loss size is determined when placing a pending order and does not change until the trade is closed. The loss is immediately known, it is psychologically easier to follow money management. If it works, you can safely understand the reasons for the error to change the trading plan. When the trend resumes, you can always enter again.

Problem: if a "small" SL of 15-20 points is set on pairs with high volatility, such as UDS/JPY or GBP/USD, their permanent closure begins. A series of small losses begins, especially on automatic Expert Advisors. Each order has its unique market situation, but we remind you once again – there is no need to save on Stop Loss. 

Example of an incorrect Stop Loss on news trading

Another problem, even with sufficient size, is the lack of control by the trader. When several deals are open, there is always a chance to miss the moment of a sharp reversal or the opportunity to transfer to breakeven and generally remove losses.

  • SL is added to the work order after the first rollback or the start of the Trailing Stop. The trader roughly determines the potential SL level based on the last local price max/min. Then, when a pending order is opened, we wait for the first correction for the exact value of SL.

Advantage: the ability to better control the development of the transaction for optimal transfer of the transaction to breakeven. It is better to transfer the order fixed, by 10-20 points, or to the following point’s max/min, Fibonacci levels or graphical patterns. 

Problem: Fast pullbacks, especially when strong fundamental news comes out. You may not have time to withdraw the SL or close the deal.

Trailing Stop

Trailing Stop, included in the basic set of all popular trading platforms, will help to make Take Profit and Stop Loss dynamically changeable depending on the development of the current market situation. If the transaction develops in a positive direction, he begins to transfer TP/SL of pending orders by a specified number of points. Thus, we get a double benefit: taking more and more profits in automatic mode, at the same time we reduce potential losses up to the transition to a state without loss when the closing of the SL is guaranteed to leave the trader with a profit.

Trailing Stop in the MetaTrader terminal

This technique is popular among automated advisors; it seems to be the best way to guarantee at least zero breakouts. Indeed, you can often see situations when the price, after a rapid movement, makes a sharp "drawdown" squeezing out small and medium players. But several factors hinder the correct calculation of Trailing Stop.

  • Dynamic spread makes it difficult to find the optimal value in points for the whole day or trading session. It does not matter whether the built-in trailing or custom - in such a situation, unpredictable losses are guaranteed. The built-in MetaTrader tester only works with a fixed spread, keep this in mind when analyzing the results;
  • Volatility is constantly changing, and trailing parameters that have performed well in a calm market may behave unpredictably in an active trading period. But when volatility increases, the average level of possible profit is also higher, you can try to increase the value by 5-10 points!
  • Broker restrictions. Each change in the parameters of an open deal is sending a new trade order to the server, wherein fact two options take place: closing the current position and opening a new position with new data. If there are too many such transactions from one account or a small Trailing Stop size, which leads to constant adjustments, the broker can apply sanctions: from a hidden increase in slippage for new orders to a complete shutdown of the flow of quotes with forced closing.

Pending order as a strategy

A trading strategy must determine the possible direction of the future movement of the market, price highs, and lows (extremes) from which deals will be opened. If there is a high probability of a rebound from the level (trend reversal), set the BUY/SELL Limit, for a breakout (continuation of the trend), place a BUY/SELL Stop.

Stop Loss is calculated according to money management, the value of Take Profit is estimated based on the current market situation and close strong supports /resistances.

It is important to correctly calculate the "lifetime" after which it should be removed. It usually stands before the opening, but there may be situations when the market has made it irrelevant or, worse, potentially unprofitable in the event of a sharp reversal. Always monitor your orders after placing them, especially during periods of speculative market and important fundamental news!

If the analysis of the strategy is done correctly, the trader has the opportunity to:

  • Find the correct entry point. Continue following the market using Buy/Sell Stop, work out reversals or local corrections for Buy/Sell Limit;
  • Expand or close a position in time. You can close a deal not only by standard TP or SL but also by placing a pending order in the opposite direction (reversal) from these levels. Thus, the current position will be closed and at the same time, the opposite one will start working, which will take the maximum profit from the trend change.
  • Control the volume of the position. You can increase a profitable position by consistently setting new entry points in the direction of the current movement. The second method: a pending order partially fixes profits using a "grid", which allows you to reduce potential losses on rollbacks.

A range of 30-40 points around the confluence point of several indicators is called a “penalty area” in professional traders' slang and it is not recommended to place any pending orders there, in such zones, there is a high probability of sharp price impulses.

Pending orders of strategies

Examples of strategies on pending orders

Let's start with news trading, for which minute movements of 100-200 points are common. In order to securely enter the market, we use the pair Buy Stop Limit + Sell Stop Limit set at a distance from the current price before the exit of the fundamental event. An impulse triggers one of the pending ones (the second is removed in this case), the SL of which can then be moved using a Trailing Stop.

News strategy on pending orders

To calculate the distance at which orders will be placed, the reaction to the news in the past and the current volatility of the asset are taken into account, but not less than 20-40 points. Otherwise, a "false" opening is possible, and in the worst case, a double Stop Loss. Profit fixation time - from 5 minutes from the moment of triggering.

The next popular example of effective use of pending orders will be a "grid" strategy in which entry points are above and below the current price after a certain "step" in points. The correct calculation of the "grid" takes the maximum profit from the market without the need to analyze the current situation and any trend or flat direction

"Grid" of pending orders Byu Stop and Limit Stop

Each "grid" order has its profit and loss settings. Thus, we obtain a set of positions symmetric to the current price, working in profit in any direction of price movement. At the same time, the load on the deposit does not go beyond the scope of moderate money management; the process lends itself well to automation by advisors.

Market makers see the levels of a large number of pending orders; in addition, they actively use Intermarket analysis for a comprehensive understanding of the market. This allows you to plan speculative actions and long-term strategies.

It is recommended to look at the current exchange information on currency and commodity futures, especially "open interest" (the volume of transactions in money). Control the closing (expiration) dates of option and futures contracts – there will be an active dynamics of open interest on the closing day. The Forex market, albeit belatedly, supports the stock trend.

You can use a pending order in simpler ways, for example, using RSI with signal confirmation by Fractals + Moving Average.

RSI with signal confirmation by Fractals + Moving Average.

At the exit of the RSI from the overbought/oversold zones, reverse orders can be opened to limit losses or work out a rollback. But we must remember that such actions can lead to unwanted locking and getting out of the "lock" will be difficult for beginners.

Let's summarize.  According to various estimates, up to 80% of Forex transactions and strategies use pending orders. Even High-Frequency Trading (HFT) algorithms do not always work only "on the market", so all traders should be able to work on pending orders. We need an integrated approach to strategy development and market analysis, even if it is scalping, the ability to calculate future actions without paying attention to small price fluctuations. Then you can count on an increase in the percentage of profitable trades and the number of "closed" points.