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:
The main advantages are immediately visible:
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):
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.
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:
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.
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.
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:
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.
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:
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.
It is important to calculate the levels correctly. We follow the rules:
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:
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:
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:
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.
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.
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, 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.
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.
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:
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.
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.
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
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.
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.