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Limit Orders Or Stop Orders?

Good day fellow traders, today I want to discuss some easy swing trading for beginners types of order. Many traders begin trading without having a proper grasp of the different order types and often get confused or worse yet, end up entering the market in the wrong direction or entering the market and not even realizing that they have a position and finding out much later when they get a call from their broker or log into their account and find out they have a position they thought they never placed or canceled.

You may think this doesn't happen often but I can tell you from personal experience that it happens much more often than you can ever imagine, not just to beginners but to professional traders who have been entering orders for years. I remember once I entered a very large order in the Japanese yen market and found out two days later that my position was opposite of what I originally intended.

What Are The Different Order Types?


The first and most basic order type is the market order. The market order communicates your desire to enter the market at the current market price. The market order does not have any restrictions on time or price and therefore provides very few limitations to getting filled.

“The market order is the most commonly used order and has many advantages as well as disadvantages. The only time a market order won't get filled is if you place the order too late in the day and markets close before your order gets filled or the market is limit up and not accepting orders at the current time.”

Market orders work well with liquid markets during low volatility periods. If markets are liquidity or volatility rises too much, the market may move substantially before the order gets executed and the fill price may be substantially different than the market price when the order was first placed.

Avoid using market orders during the opening and closing time of day; this is the most volatile period of the trading day when markets exhibit the most movement, so please try to avoid entering market orders during this period of time.

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Limit Orders Are Often Part Of Every Easy Swing Trading For Beginners Strategy

The second most commonly used order type is a limit order. A limit order communicates your desire to purchase at a price that's below the market price or to sell above the market price. A good way to remember a limit order is to think of getting a bargain, that's the purpose of a limit order to get filled at a price that's better than the current market price.

“The major advantage to limit orders is actually getting the desired price fill at your price; the major disadvantage to limit orders is if the market doesn't trade at your price, you will miss out on the trade. Market orders are guaranteed to be executed, under normal open market conditions, while limit orders may sit all day and expire if the market doesn't trade at your desired price.”

You have to be very careful when using limit orders and weight the upside of getting filled at your price compared to the downside of not getting executed. When placing limit orders you have to decide the importance of getting filled. If the market is inactive and isn't going anywhere, limit orders may be the ideal order.

However, if you are looking to exit a losing position that's going against you or you're interested in entering a position before the market takes off a limit order may not be the best solution under those circumstances.

Stop Orders

The last type of order that traders tend to use frequently is a stop order. This type of order may seem a bit complex for an easy swing trading for beginners article and may even be a bit intimidating, but It's one of those orders that traders need to know about if they are truly intending on swing trading.

A stop order is an order to buy at a predetermined price that's above the current market price and sell at a predetermined price that's lower than the current market price. Stop orders are often utilized to protect existing long positions from sharp down moves and conversely, protect existing short positions from strong upward moves.

“Another frequent use of stop orders is to enter long positions above current market prices and enter short positions below the current market price, this is very common for many swing trading methods when the goal is to get into the market going long if the market moves in the desired direction first and similarly enter a short order if the market first moves downwards.

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I personally use this entry method for a large majority of my orders, because I like to see momentum moving in my direction prior to entering the market.”

The downside to using this method is there is no guarantee that your fill will be at your stop price. Once the market trades at your stop price the order becomes a market order. If the market is moving quickly, your order may be filled at a price above your long entry order or substantially below your stop order if your order is a sell stop order.

Therefore you must be very careful when placing these types of orders and you must be aware that your fill price may be substantially different than your order price. The stop order is usually the most common used order in any easy swing trading for beginners trading method.

These are three orders are the most popular type of order for short term trading methods. There are other order types but these three tend to be used most often and should be part of any easy swing trading for beginner method.

Roger Scott
Senior Publisher
WealthPress