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How to Use Order Types

Views 2123Feb 5, 2024

How to trade with advanced order types?

In the last lesson, we walked you through some basic types of orders, including limit orders, market orders, auction orders, and odd-lot orders (Tap here to do a recap).

These order types offer you the flexibility to execute trades based on your needs and preferences.

Today, we'll take a look at some more advanced tools in your trading toolkit, including stop-loss orders, limit-if-touched orders, and trailing stop orders. They can help you cap losses, lock in potenitial profit, and possibly maximize your potential return.

Let's dive right into them!

1. Mitigate risks with stop-loss orders

You might have made a losing investment, buying a stock at its high and exiting at its low. If you want to mitigate the risks of your stock position but don't have time to watch the market all day long, consider placing a stop-loss order.

Let's look at a hypothetical scenario to see how it works. Suppose Mike bought 100 shares of stock A at $70. He worried the stock might plunge in reaction to unexpected bad news, causing him a gigantic loss. So he placed a sell stop-loss order with a stop price of $65.00 and a limit price of $64.90. In other words, a limit order at $64.90 will be automatically placed once the stock price falls to $65.00.

But before you jump into trades, keep in mind that the stop price works only as a trigger. The price at which you tell your broker to trade the stock is the limit price. So your broker will buy or sell the stock only if it can get this limit price or better. Theoretically, the closer you set the limit price to the market price, the quicker you close your position.

Of course, if you want to initiate a trade sooner when the stock price meets a condition, consider a stop-market order. If the price moves past the stop price, your stop-market order is triggered and converted into a market order. Your broker will treat your order as a market order and fill it as soon as a buyer or seller is available.

2. Limit-if-touched (LIT) orders for profit-taking

This type of advanced order helps you lock in potential profits when the stock you hold reaches your desired price and then start trading sideways.

A limit-if-touched order can be placed at a key indicated resistance level. If the stock moves in the direction as you expected and touches the trigger price, your limit-if-touched order becomes a limit order. Your broker will buy or sell the stock for you only if it can get the set limit price or better.

An LIT order works similarly to a stop-loss order. The price at which you tell your broker to trade the stock is the limit price but not the trigger price. Your broker will buy or sell the stock only if it can get this limit price or better. Theoretically, the closer you set the limit price to the market price, the quicker you close your position.

Similarly, you can place a market-if-touched order if you want to close your trade as soon as possible once triggered.

The scenario we mentioned above assumes you've already held the stock. The attached order function on moomoo offers shortcuts to set advanced order types while you're opening a position. When you enter the Trade page of a stock, switch to Pro mode and you'll see Attached Orders. Tap it and choose to place a Profit Taker, a Stop Loss, or a Bracket order (comprising of a profit taker and a stop loss order).

It is worth noting here that the limit price of a profit taker represents both the trigger price and the limit price, while the stop loss price only represents the trigger price, meaning once the stock price hits the trigger price, the stop-loss order will turn into a market order.

3. Open your position with a stop-loss or market-if-touched order to potentially seize a buy opportunity

Can we open a stock position with a stop loss or a market-if-touched order? Yes! With their help, you might be able to enter the market at a opportune time, especially if you happen to place these orders at a relative low.

For example, suppose a MIT order is placed at $200 as the trader believes a potential bottom for stock A is at around $200. When the stock reaches $200, the order is triggered and becomes a market order.

But keep in mind that you should get right the direction of your stop-loss or market-if-touched if you want to open your position with them.

4. Trailing-stop orders can help mitigate risks while potentially increasing realized profits

Sometimes we don't have a clear trading strategy, especially in a choppy market. Is it possible for us to achieve gains when the stock is trading sideways?

Trailing stop orders can be useful. After opening a stock position, you can place a trailing-stop order that can helps mitigate risks and increase profits with precision.

For example, if we buy a stock at $120 and add a 10% trailing stop loss to this trade, a market sell order will be issued if the price drops 10% to $108.

But if the stock goes up, the trailing stop will also move up. That is to say, if the stock price climbs to $130, the trailing stop will rise to $117; if the stock goes up to $140, the trailing stop will be $126. If the trend reverses and the stock declines 10%, say falling from $140 to $126, the trailing stop will become a market order and can help its trader take profit.

Still, there are a few things to keep in mind:

This type of order is designed to protect existing positions by adjusting the stop price in response to the stock's price movements.

You can choose to set the trailing stop at a fixed percentage or a dollar amount.

For a trailing stop limit order, the price at which you tell your broker to trade the stock is the limit price less the fixed spread in percentage or dollars.

Now we've covered all seven types of orders. It's time for you to have some hands-on practice with those advanced order types. Hope you get some takeaways from today's lesson. Are there any other trading tools on moomoo that you want to know more about? Type it in the Comments and we may talk about it in our next show! We'll also pick out three users who comment and reward 66 moo points.

Limit and stop orders do not guarantee that an execution will occur because the price may never reach your limit or stop price, or there are other orders ahead of yours.

This presentation is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. It is provided without respect to individual investors’ financial sophistication, financial situation, investment objectives, investing time horizon, or risk tolerance. You should consider the appropriateness of this information having regard to your relevant personal circumstances before making any investment decisions. Past investment performance does not indicate or guarantee future success. Returns will vary, and all investments carry risks, including loss of principal. Moomoo makes no representation or warranty as to its adequacy, completeness, accuracy or timeline for any particular purpose of the above content.

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