What Price Movement Do I Expect?

Limit orders allow you to get out of the market at the moment when a predefined price target is achieved. Unless you have a short position or a sell trade, a limit order can be placed entirely below the entering price as this is the profit zone. It is similar if you have a long position or a buy trade. However, in that case you place your limit above the entering price. Limit orders help you to develop a disciplined trading methodology and enable you to stay away from the PC without having to observe the market continuously.

Stop-loss orders permit traders to name an exiting point in the case of a loss. If you hold a short position or a sell trade a stop-loss order will be placed above the entering price. On the other hand, if you have a long position or a buy trade, a stop-loss order will be placed below the entering price. Stop-loss orders help traders to control the risk by limiting losses.

As a general rule of thumb stop-loss orders should be placed closer than limit orders at the opening price. If one follows this rule one has to be more or less correct in fewer than 50% of all transactions in order to generate income. Where exactly a trader places his stops and limits depends on what chart time frame and risk readiness he is utilising. So that commercial price fluctuations don't liquidate positions unnecessarily, stop-loss orders may not be placed too close to the opening price. On the other hand, limit orders should entail a realistic expectation of profits considering the present market volatility.