How to Use Buy Limit and Buy Stop Order – Explained With Examples
In this lesson we will discuss the buy limit and buy stop and how you can use them as well as how you can execute the order on your trading platform.
However, to understand the buy limit and buy stop we must understand the market order.
When you are placing a market order you are placing either a buy or sell order to enter at the best available price.
An example of this may be; you enter a market order to buy XYZ that has a bid price of 1.3512 and an ask of 1.3514.
After placing your buy order, XYZ would be sold to you at 1.3514.
See the image below showing a market order on MT4;
You also need to keep in mind that you will not always be entered into the exact price you were quoted when you hit buy or sell.
Depending on the market conditions for example when news is released and the market is extremely volatile, you may get a different price.
What is a Limit Entry Order?
When placing a limit entry order you are looking to buy below the market or sell above the market at a certain price.
As an example; the ABC/XYZ pair is trading at 1.3510. You want to short tell when it gets to 1.3520.
You have two options;
Sit, wait and see if price moves into the price you want to sell at or, create a sell limit order.
If price goes up into 1.3520, then your sell limit would be activated at the best available price. You would use this order if you are looking for price to reverse back lower.
A buy limit is the same, but in reverse order.
You are looking to enter at a price that is below the current price and for price to then move back higher in your favor.
Using Buy Limit and Buy Stop Orders
A buy limit is an order to buy at a level below the current price.
If price was to move lower and into your chosen price, your entry would be activated at the best available price.
An example of this may be; you are looking to buy the ABC / XYZ pair, but only at a lower price.
You can either sit and watch to see if price moves lower and then enter, or create a buy limit.
If price is currently trading at 1.5630 and you want to enter at 1.5620 you could create a buy limit order so when price moves lower you would buy and look for it to move back higher again.
You use the buy limit if you think the price will drop, before reversing and again moving back higher.
See below how to create a buy limit on MT4
A buy stop order is an order where you are entered if price moves above the current price.
The buy stop order is often used by breakout traders and traders using a pyramiding system to create bigger winning trades.
An example of a buy stop may be; you are looking to go long and buy the ABC / XYZ pair that is currently trading at 1.3510, but only if it moves higher to 1.3530.
You set a buy stop order so that if price does move higher and into the 1.3530 price you will be entered into a long trade.
See an image below of how to create a buy stop on MT4
How to Place a Buy Limit and Buy Stop Order on MT4
NOTE: If you don’t have the correct New York close MT4 / MT5 charts you can download a free demo here.
Here are the steps to place pending buy limit and buy stop orders;
– When you have your MT4 / MT5 charts open;
– Click tools >> New Order button.
– From the ‘symbol’ drop-down list, choose the currency pair you want to trade.
– In the Order Type dropdown select ‘Pending Order’.
You will be presented with 4 options:
Buy Limit – Order to go long a level lower than current market price
Sell Limit – Order to go short at a level higher than current market price
Buy Stop – Order to go long at a level higher than current market price
Sell Stop – Order to go short at a level lower than market price
– Next, enter the price you want to enter.
– Enter the size of your position in the volume field.
– Fill in the stop loss and take profit fields.
– Once you are happy and it is all filled out, click the ‘Place’ button to enter your trade.