Setting trades

Now that you can read charts, it's time to learn how to actually place a trade. This page explains how placing trades works and which important settings you need to understand.

Order types

There are three types of orders to execute a trade:

Market order

A market order is executed immediately at the best available price at that moment. The order is guaranteed to be executed, but you don't know exactly at what price.

How it works:

• You place a market order to buy or sell
• The order is executed immediately at the current market price
• The execution price may differ slightly from what you see on your chart (slippage, see below)

Limit order

A limit order is only executed at a price you specify or better.

How it works:

• You set a price (for example $100)
• When buying: The order is executed when the price drops to $100 or lower
• When selling: The order is executed when the price rises to $100 or higher
• No guarantee of execution: if the price doesn't reach your entry, nothing happens

Stop order

A stop order becomes a market order once a certain price (the stop price) is reached.

How it works:

• You set a stop price (for example $100)
• As long as the price stays below $100, nothing happens
• Once the price hits $100 or breaks through it, a market order is automatically executed
• The order is executed at the best available price at that moment (may differ from your stop price)

In practice

What are the exact differences between these orders in practice and when do you use which type? Below is a helpful overview.

Limit order:

• Buy limit: A buy order or long trade that you place below the current price. Executed when the price drops to your entry. For example: price is $100, your buy limit at $99 is executed when the price drops to $99. You expect the price to reverse upward.
  • Note: If you place a buy limit above the current price (for example price is $100, buy limit at $101), the order is executed immediately at the current market price (like a market order). If you want to buy when the price rises, use a buy stop order.
• Sell limit: A sell order or short trade that you place above the current price. Executed when the price rises to your entry. For example: price is $100, your sell limit at $101 is executed when the price rises to $101. You expect the price to reverse downward.
  • Note: If you place a sell limit below the current price (for example price is $100, sell limit at $99), the order is executed immediately at the current market price (like a market order). If you want to sell when the price falls, use a sell stop order.

In short: A limit order is executed at a price equal to or better than your set entry price. You wait for the price to come to your entry (and then reverse).

Stop order:

• Buy stop: Place above the current price. Executed when the price rises through your entry. For example: price is $99, your buy stop at $100 is executed when the price rises to $100. You expect the price to continue rising.
• Sell stop: Place below the current price. Executed when the price falls through your entry. For example: price is $101, your sell stop at $100 is executed when the price falls to $100. You expect the price to continue falling.

In short: A stop order is executed at the market price (may be less favorable). You wait for the price to break through your entry (and then continue).

Going long or short

You've already learned that you can make a profit with both rising and falling prices:

Going long: You buy a stock because you expect the price to rise. You sell later at a higher price. This is what most people know.

Going short: You sell a stock (borrowed from your broker) because you expect the price to fall. You buy back later at a lower price. The difference is your profit.

In your trading platform, you simply click "Buy" or "Sell". Your broker handles the rest automatically. For you as a trader, it makes no difference.

Stop loss

A stop loss is an automatic order that limits your loss. For example: You buy a stock at $100. You then set a stop loss at $98. If the price drops to $98, your position is automatically sold and your loss is limited to $2. In most trading platforms, you can set a stop-loss via a drag-and-drop function, and as an alternative, you can enter a price yourself or place a contra-order.

Why is a stop loss so important?

• It protects you from large losses
• It prevents emotional decisions ("it'll come back")
• It's essential for money management

How do you determine the price of your stop loss? This depends on market conditions and the strategy you're trading. In a later chapter, we'll go deeper into this.

Important: ALWAYS set a stop loss when you open a trade. Without a stop loss, you can suffer enormous losses.

Target / Take profit

A take profit (also called target) is an automatic order that locks in your profit. For example: You buy a stock at $100. You then set a target at $104. If the price rises to $104, your position is automatically sold and you've made $4 profit.

Is a target required? A fixed target is not necessarily required. There are various so-called exit strategies, and this depends on market conditions and the strategy you're trading.

How far do you set your take profit?

• Risk-reward ratio: If you risk $2 (stop loss), try to take at least $4 profit (1:2 risk-reward ratio, or 2R).
• Technical levels: Set your take profit just before an important resistance (for long) or support (for short). Only take the trade if there's 2R between your entry and the next level.

Tip: You can set multiple take profits. For example: sell 50% of your position at target 1, and let the rest run to target 2. This is called taking partials.

Spread

The spread is the difference between the bid price (at which you can sell) and the ask price (at which you can buy). This difference always exists in the market.

Example: If the ask price is $100 and the bid price is $99.98, then the spread is $0.02.

When do you "pay" the spread?

• With market orders: You buy directly at the ask price and sell at the bid price. You pay the spread directly.
• With limit orders: If you place a limit order at, for example, $100 and it's executed, you get exactly $100. The spread is not visible as a difference then, but it still exists in the market. You "pay" the spread when you exit: you sell at the lower bid price (or buy back at the higher ask price for short trades).

Why is this important?

• Large spreads make trading more expensive: you need more movement to be profitable
• With market orders, you start with a small loss immediately (the spread)
• When exiting, you always sell at the lower bid price (or buy back at the higher ask price)

The smaller the spread, the better. High volume stocks usually have small spreads. Low volume stocks have large spreads. As a beginning trader, it's better to avoid stocks with high spreads.

Slippage

Slippage is the difference between the price you expected and the price at which your order is actually executed. This is different from the spread.

Example: You place a limit buy order at $100 to buy. Due to a very rapid market movement, your order is executed at $100.05. That $0.05 extra is slippage. Sometimes it works in your favor: your order can be executed at $99.98, which is better than your expected $100.

When does this happen?

• During high volatility or rapid market movements, such as the first 10 minutes after market open or important news.
• With low liquidity, there are fewer orders available
• With market orders, where you accept what the market offers at that moment

Difference from spread:

• Spread always exists in the market (difference between bid and ask). With limit orders, you don't always see this directly, but you "pay" it when exiting.
• Slippage is extra: it's the deviation that occurs because the market moves (quickly) between order placement and execution. This can work out positively or negatively, but negative slippage occurs more often.

How do you limit slippage?

• Avoid trading during important news events or the first minutes after market open
• Choose liquid stocks with high volume

A complete trade: example

1. Recognize setup: You see a bullish pattern on the chart, price above VWAP, high volume.
2. Determine entry: You place a limit order at $100 (just above an important level).
3. Stop loss: You set your stop loss at $98 (below the support level, $2 risk).
4. Take profit: You set your take profit at $104 (just below resistance, $4 profit = 1:2 risk reward ratio).
5. Place order: You click "Buy" and wait.
6. Management: If your order is executed, let the plan work. No emotions, just wait.

This is how professional traders work: with a plan, stop loss, and take profit. Without these elements, trading is gambling.

Next steps

Now that you know how to place trades, it's time to practice this a few times. Start with paper trading (demo account) to learn without risk. In the next section, you'll learn about strategies, emotions, and logging.