$350 profit from some simple market moves

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$350 profit from some simple market moves

In this article I will show you some screen shots and explanations for some trades of mine, last week.

As you can see I trade in a binary options exchange and I made about 350$ profit with some simple moves of the market which I will show you right now. Let’s go to the first screen shot.

As you can see in this screen shot I took two trades (one put arrow and one call arrow). I took these trades with simple signs and with not much confluence based only in the trending market. I don’t do it many times. I usually trade with much confluence. We are in a down trend, notice that we have lower- highs, the price makes reversals in the trend lines which act as support and resistance. In the put arrow I took a put (I bought a “5min down GBPUSD” contract) because the price was away from the trend line or the fibs important levels. So, I wait about three minutes and sell the contract before the expiry when price comes close to the trend line. (before the reversal).RSI was extremely over sold in this spot. I made about 30$ profit from this trade.

In the put arrow I took a call (I bought a “5min up GBPUSD” contract). I bought it about 68 Euro so my profit would be 100-68=32. After the reversal I was waiting for a mini- trend up and a high lower than the previous because we are in a down trend. The price breaks the cloud but the next candle was red. So, I was waiting. After that we have a small green candle and then a pull back. But, our CCI that time has crossed the zero level so after the pull back I bought the contract. The next candle was big and green which gave me a profit of about 25 euro some minutes before the expiry, a profit near to my max profit of the trade. So, the next moves of the price were in the direction I predict but I closed my trade early and took a profit of 25 euro(about 33$)

The current charts are 1min chart. If you are working in small time frames with short expiry times you must be very careful. I recommend for short term traders to analyze two time frames , the 1min chart and the 5min chart to have a general picture of the market and don’t trade against the general moves.

Will Apple Stock Hit $350 Soon?

Although AAPL stock is likely to make new highs in 2020, there might be short-term volatility

Apple (NASDAQ: AAPL ) stock rose over 2.3% on Thursday, the first trading day of the decade, hitting a new 52-week high intraday at $300.60. However, as I write this article, Friday is proving to be another story for AAPL stock as well as the broader markets. Headlines on political developments and fresh tensions in the Middle East are likely to dominate the short-term mood in the markets.

In 2020, Apple stock delivered its best performance in a decade, rising over 86%. Now investors are wondering if the share price could soon reach $350. Although I firmly believe that Apple stock will continue to perform well in the long-term, on a short-term basis, it may be a good idea to take some paper profits you may have in Apple stock.

Similarly, I would urge investors to not commit all their intended capital to AAPL stock in the coming days yet, especially before the release of quarterly earnings expected in late January. Any upcoming sell-off are likely to offer a dip-buying opportunity in Apple shares.

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Can Apple Stock Have Another Strong Quarter?

When AAPL reports Q1 earnings in several weeks, investors will be looking closely at the company’s fundamental numbers, including total revenue and iPhone revenue, which accounts for over half of its total revenue.

In October, the tech giant posted Q4 revenue of $64 billion, an increase of 2% YoY, and quarterly earnings per diluted share of $3.03, up 4%.

Wall Street will also analyze the revenue from Apple’s Services, which has grown over 50% in two years, making it the second-largest business behind the iPhone.

The owners of Apple stock who remain committed to AAPL realize the importance of its Services business, which includes the App Store, Apple Pay, iTunes, AppleCare and Apple Music, to the company’s bottom line in both the near-term and the longer term.

These value-added services help consumers get more benefit and enjoyment from their Apple products. AAPL has been working hard to convince more of its customers to sign up for its various services. That trend should continue. Driving more revenue and profit from Services will provide the next growth catalyst, enabling Apple stock to rise.

In its Q4 result, Apple’s guidance for the first quarter of fiscal 2020 included expected revenue of $85.5-$89.5 billion and gross margin between 37.5% and 38.5%.

When you add the fact that the group has a clean, strong balance sheet and generates about $60 billion per year in free cash flow, it is quite easy to see why many investors love AAPL stock.

The recent strength in the Apple stock price indicates that investors are expecting a robust holiday quarter from Apple, including high sales numbers from wearables. Therefore, if iPhone or Services revenue comes in below expectations, Apple stock could easily be pushed downwards.

Consumer Demand Is a Long-Term Tailwind for AAPL Stock

Research by Johnna Montgomerie and Samuel Roscoe of the University of Manchester highlight that Apple “owns the consumer.” In other words “the Apple business model is designed to drive consumers into its ecosystem and then hold them there, which has been hugely successful to date and allowed Apple to wield enormous power in the end-to-end supply chain. This business model [also] gives Apple the unique ability to maintain a low cost sourcing strategy.”

Apple tops Forbes’ annual ranking of world’s most valuable brands. A customer that buys an Apple product is likely to try and buy other Apple products and increasingly use Services.

And robust consumer demand enables Apple to charge a premium for its iPhones, watches, and even TV boxes. All Apple products are generally more expensive than those offered by competitors. However, that does not stop die-hard Apple fans from using the company’s products.

In a December 2020 note, J.P. Morgan analyst Samik Chatterjee predicted that the group could possibly release four new iPhones in fall 2020. It is hard to know how the pricing strategy would develop and what the total revenue contribution from each new smartphone would be. However, I believe such a move would show management’s conviction that they would be able to reach a wide range of existing and new customers with updated products, which should also help Apple boost user numbers of its Services.

With a market cap of over $1.3 trillion, it would be safe to assume that in case of a market decline, Apple stock is unlikely get held down by the market for too long. The Street tends to regard large market cap companies as good and stable long-term investments. Apple stock is held mostly by funds and institutions and it is likely to remain as a top holding for them in the new year, too.

How many technology companies are there with the scale of Apple?

Short-Term Apple Charts Urge Caution

Current short-term charts indicate that investors should be cautious on AAPL stock. Given the recent impressive gains, especially in the past few months, its short-term technical indicators have become overextended. Investors who pay attention to short-term technical charts and oscillators should note that AAPL stock looks overbought.

Therefore, I expect some short-term volatility and profit-taking in the Apple share price, especially if there is any general weakness in the tech sector or negative company-specific news during the earnings season this quarter.

On the upside, I expect resistance first at $305 and then at $325. And if Apple’s results are disappointing, Apple stock could easily go down to the low $270s or even the high $250s. Thus if you still believe in the bull case for Apple stock, you might consider waiting for a better time to get long.

Current owners of Apple stock may also consider hedging their positions. For hedging strategies, covered calls that expire on Feb. 21 could be appropriate. Such a hedge would offer some downside protection as well as the opportunity to participate in a potential up move.

Is Apple Stock Becoming Richly Valued?

Although long-term investors are delighted with the recent gains in the Apple stock price, the Street is beginning to question whether the shares are fast becoming richly valued. The trailing and forward price-earnings ratios of AAPL stock are over 25 and 22 respectively, which are rather high for the stock on a historic average basis.

In May, around the time when Apple shares were about $200, Bernstein analyst Toni Sacconaghi regarded Apple stock’s forward P/E ratio of 17 at the time unsustainably high. His price target then was $190.

Similarly, AAPL stock’s price-to-sales (P/S) ratio is at historic highs. On Jan. 2, 2020, it closed over 5.3x. This is the highest P/S level for Apple shares over the past five years. Analysts prefer a low P/S multiple, ideally below 1x. However, a P/S number between 1x and 2x is more common. To put the metric into perspective, the S&P 500’s average price-sales ratio is about 2.2x.

Could these metrics also be telling investors that any potential positive news expected in the upcoming quarterly result is already priced into Apple stock?

The Bottom Line on AAPL Stock

CNBC’s Jim Cramer has repeatedly said that investors should own Apple stock and not trade it. I believe many on the Street would agree with him.

Planning to hold a robust leader like AAPL stock long-term enables average investors to not be affected by its short-term volatility, especially on big market days such as around quarterly earnings releases. In addition, they do not miss out on the pops and big up days Apple shares have every now and then.

In 2020, the stock had a 7 for 1 split. If it were not for the split, Apple shares today would be almost worth $2,100. With its ecosystem of products and services, the company is likely to dominate Wall Street headlines as well as the tech scene globally for a long time into the future.

Over the long haul, robust fundamental numbers are what make a company worth investing in. Yet over the short-term, investor sentiment and price momentum affect the stock price of a company as closely watched as Apple stock is.

As a result, if you are not yet long APPL shares, you may want to consider waiting to buy the stock until after it has reported results in late January.

As of this writing, the author didn’t hold positions in any of the aforementioned securities.

5 Brilliant Moves to Make if the Stock Market Plunges in 2020

Here’s your playbook if the bear market continues in the new year.

The S&P 500 recently dipped into bear market territory. While there’s no way of knowing if the market will drop further, or if the end-of-year rally will hold up, it’s always a smart idea to prepare for the worst.

Bear markets can certainly be scary, and nobody enjoys watching the value of their stock portfolio decline. However, if you take a step back and think strategically, you can make it through the turbulent times unscathed — and even take advantage of the situation. With that in mind, here are five moves to make if the market continues to decline in 2020.

Image source: Getty Images.

Make sure your near-term needs are met

In the modern (Post-World War II) era, the average bear market has lasted for 13 months, and it takes the stock market an average of 22 months to recover from it. Adding these two numbers together tells us that it’s reasonable to expect a three-year wait before the market finally breaks through to new highs. Don’t get me wrong — we can certainly hope it goes quicker, but for planning purposes, let’s assume that this is what will happen.

The point is that this can go on for quite a while, and stocks could potentially go down much more before things get better. In the average bear market, stocks lose 30.4% of their value, and we still have a long way to go until we reach that point. And keep in mind that this is just the average; sometimes it’s worse..

Here’s the takeaway: Before we talk about investment strategies, it’s important to make sure your near-term major spending needs are met. For example, if you need to make a tuition payment to your child’s college in a few months, it’s not a smart idea to leave that money invested right now. At a minimum, I’d suggest keeping the money you’ll need for major expenses within the next year or so in cash or equivalents.

Don’t sell your stocks

As long as your short-term financial needs are taken care of, the absolute worst move you can make as an investor is to sell into a bear market. Just ask anyone who liquidated their portfolio in late 2008, or in the aftermath of the dot-com crash, how the move worked out for them.

Humans are emotional beings. When the values of our investments plummet, our emotions tell us that we should sell before things get any worse. The golden rule of investing is to “buy low and sell high.” Selling into market weakness is the exact opposite of what you should be doing.

Take advantage of bargains

Let’s say that you were out shopping at your favorite store. All of a sudden, the store manager got on the intercom and announced that everything in the store was 25% off. Would you panic, unload your shopping cart, and leave the store? Of course not. You’d probably buy even more. The same logic applies to bear markets.

To be fair, this isn’t a perfect comparison. Obviously, if you knew that stocks were going to be 25% cheaper this month and would then go back up to their previous highs immediately, it would be a no-brainer. Instead, a bear market is like a major sale, but where the prices change constantly. You don’t know if the items in the store (stocks) are going to be even cheaper tomorrow or if they’ll be marked back up.

One way to get around this is to average into positions during this bear market. For example, I’m considering adding to my Apple (NASDAQ: AAPL) investment after the recent plunge. I think the stock looks ridiculously cheap in the $150s. However, it’s entirely possible that the stock could go down even further — especially if the broader market sell-off continues, or if a recession hits in 2020.

So, instead of putting all of the money I want to invest in Apple to work at once, I may invest one-third of it in the near future, then another third a couple months from now, and then the final third a couple months after that. If I do this, there are a few ways it could play out:

  • Apple could continue to drop after my initial investment. In this case, I’ll be investing the bulk of my money in even cheaper shares.
  • Apple could stay around the current levels, in which case the effect isn’t much different than if I invested all of it today.
  • Apple could rise considerably after my initial investment. This would be the “worst-case scenario” as I’d miss out on the gains I’d have had if I invested everything, but I’d have a profitable (but smaller) investment and some cash left on the sidelines that I could put to work in another attractive stock.

If you ask me, none of these are bad outcomes. On the contrary, if I invested all of my money today and Apple proceeded to go down, not only would my portfolio be worth less, but I’d have no money available to take advantage of the even-lower share price.

Check your balance

Rebalancing your portfolio is a smart thing to do whenever the stock market moves significantly in either direction. It’s a good idea to make sure your portfolio is well balanced right now, and then check it again if the market continues to drop (or if it rises) in 2020.

Here’s a simplified example. Let’s say that you determine that a 75%/25% stock-to-bond ratio is ideal for you, so you invest your portfolio accordingly. Now let’s say that stock prices fall by 30% but bond prices don’t budge. If this were to happen, your portfolio would now have 68% stocks and 32% bonds. In order to maintain your desired asset allocation, you’ll need to sell some of your bond investments and buy stocks.

In bear markets, not only does rebalancing keep your asset allocation correct, but it also naturally helps you to take advantage of lower stock prices.

Max out your retirement savings

The absolute best way to take advantage of the long-term power of discounted stocks in a bear market is to invest in them through a tax-advantaged retirement account. This way, you won’t have to pay capital gains tax when you sell a stock at a profit, and you won’t have to pay tax on the dividends your stocks pay — all of your money will be free to compound until you need to withdraw it.

For 2020, the IRS has increased the contribution limits on most types of retirement accounts. The IRA contribution limit, for example, has increased to $6,000 ($7,000 if you’re 50 or older). And, it’s also worth mentioning that 2020 IRA contributions can be made until the April tax deadline, so if you haven’t yet maxed out your IRA for 2020, you could potentially invest even more money on a tax-advantaged basis while stocks are down.

Trust the process

Bear markets can certainly be scary. And because it’s been a decade since the last one, many investors — especially younger ones — are in unfamiliar territory.

The general takeaway is to stay the course. Smart investing is a decades-long process, and bear markets are a normal part of a healthy stock market. In fact, a 20% drop from recent highs (the general definition of a bear market) occurs once every three years or so. By holding on to your investments through the tough times, and strategically adding to them while they’re down, you can use a bear market to set yourself up for long-term success.

Understanding Straddle Strategy For Market Profits

In trading, there are numerous sophisticated trading strategies designed to help traders succeed regardless of whether the market moves up or down. Some of the more sophisticated strategies, such as iron condors and iron butterflies, are legendary in the world of options. They require complex buying and selling of multiple options at various strike prices. The end result is to make sure a trader is able to profit no matter where the underlying price of the stock, currency or commodity ends up.

However, one of the least sophisticated option strategies can accomplish the same market neutral objective with a lot less hassle. The strategy is known as a straddle. It only requires the purchase or sale of one put and one call to become activated. In this article, we’ll take a look at different the types of straddles and the benefits and pitfalls of each.

Types of Straddles

A straddle is a strategy accomplished by holding an equal number of puts and calls with the same strike price and expiration dates. The following are the two types of straddle positions.

  • Long Straddle – The long straddle is designed around the purchase of a put and a call at the exact same strike price and expiration date. The long straddle is meant to take advantage of the market price change by exploiting increased volatility. Regardless of which direction the market’s price moves, a long straddle position will have you positioned to take advantage of it.
  • Short Straddle – The short straddle requires the trader to sell both a put and a call option at the same strike price and expiration date. By selling the options, a trader is able to collect the premium as a profit. A trader only thrives when a short straddle is in a market with little or no volatility. The opportunity to profit will be based 100% on the market’s lack of ability to move up or down. If the market develops a bias either way, then the total premium collected is at jeopardy.

The success or failure of any straddle is based on the natural limitations that options inherently have along with the market’s overall momentum. (For more, see: Option Basics Tutorial)

The Long Straddle

A long straddle is specially designed to assist a trader to catch profits no matter where the market decides to go. There are three directions a market may move: up, down or sideways. When the market is moving sideways, it’s difficult to know whether it will break to the upside or downside. To successfully prepare for the market’s breakout, there is one of two choices available:

  1. The trader can pick a side and hope the market breaks in that direction.
  2. The trader can hedge his or her bets and pick both sides simultaneously. That’s where the long straddle comes in.

By purchasing a put and a call, the trader is able to catch the market’s move regardless of its direction. If the market moves up, the call is there; if the market moves down, the put is there. In Figure 1, we look at a 17-day snapshot of the euro market. This snapshot finds the euro stuck between $1.5660 and $1.54.

While the market looks like it may break through the $1.5660 price, there is no guarantee it will. Based on this uncertainty, purchasing a straddle will allow us to catch the market if it breaks to the upside or if it heads back down to the $1.54 level. This allows the trader to avoid any surprises.

Drawbacks to the Long Straddle

The following are the three key drawbacks to the long straddle.

  • Expense
  • Risk of loss
  • Lack of volatility

The rule of thumb when it comes to purchasing options is in-the-money and at-the-money options are more expensive than out-of-the-money options. Each at-the-money option can be worth a few thousand dollars. So while the original intent is to be able to catch the market’s move, the cost to do so may not match the amount at risk.

In Figure 2 we see the market breaks to the upside, straight through $1.5660.

ATM Straddle (At-The-Money)

This leads us to the second problem: risk of loss. While our call at $1.5660 has now moved in the money and increased in value in the process, the $1.5660 put has now decreased in value because it has now moved farther out of the money. How quickly a trader can exit the losing side of straddle will have a significant impact on what the overall profitable outcome of the straddle can be. If the option losses mount quicker than the option gains or the market fails to move enough to make up for the losses, the overall trade will be a loser.

The final drawback deals with the inherent makeup of options. All options are comprised of the following two values:

  • Time value – The time value comes from how far the option is from expiring. (For more insight, read: The Importance Of Time Value.)
  • Intrinsic value – The intrinsic value comes from the option’s strike price being out, in, or at the money.

If the market lacks volatility and does not move up or down, both the put and call option will lose value every day. This will go on until the market either definitively chooses a direction or the options expire worthless.

The Short Straddle

The short straddle’s strength is also its drawback. Instead of purchasing a put and a call, a put and a call are sold in order to generate income from the premiums. The thousands spent by the put and call buyers actually fill your account. This can be a great boon for any trader. The downside, however, is that when you sell an option you expose yourself to unlimited risk. (For related reading, see: Options Hazards That Can Bruise Your Portfolio.)

As long as the market does not move up or down in price, the short straddle trader is perfectly fine. The optimum profitable scenario involves the erosion of both the time value and the intrinsic value of the put and call options. In the event the market does pick a direction, the trader not only has to pay for any losses that accrue, but he or she must also give back the premium he has collected.

The only recourse short straddle traders have is to buy back the options they sold when the value justifies doing so. This can occur anytime during the life cycle of a trade. If this is not done, the only choice is to hold on until expiration.

When Straddles Strategy Works Best

The option straddle works best when it meets at least one of these three criteria:

  • The market is in a sideways pattern.
  • There is pending news, earnings or another announcement.
  • Analysts have extensive predictions on a particular announcement.

Analysts can have tremendous impact on how the market reacts before an announcement is ever made. Prior to any earnings decision or governmental announcement, analysts do their best to predict what the exact value of the announcement will be. Analysts may make estimates weeks in advance of the actual announcement, which inadvertently forces the market to move up or down. Whether the prediction is right or wrong is secondary to how the market reacts and whether your straddle will be profitable. (For more insight, read Analyst Recommendations: Do Sell Ratings Exist?)

After the actual numbers are released, the market has one of two ways to react: The analysts’ prediction can add either to or decrease the momentum of the actual price once the announcement is made. In other words, it will proceed in the direction of what the analyst predicted or it will show signs of fatigue. A properly created straddle, short or long, can successfully take advantage of just this type of market scenario. The difficulty occurs in knowing when to use a short or a long straddle. This can only be determined when the market will move counter to the news and when the news will simply add to the momentum of the market’s direction.

Conclusion

There is a constant pressure on traders to choose to buy or sell, collect premium or pay premiums, but the straddle is the great equalizer. The straddle allows a trader to let the market decide where it wants to go. The classic trading adage is “the trend is your friend.” Take advantage of one of the few times you are allowed to be in two places at once with both a put and a call. (For related reading, see: How the Straddle Rule Creates Tax Opportunities for Options Traders.)

Trading Order Types

Market, Limit, Stop and If Touched

All trades are made up of separate orders that are used together to make a complete trade. All trades consist of at least two orders: one to get into the trade, and another order to exit the trade. Order types are the same whether trading stocks, currencies or futures.

A single order is either a buy order or a sell order, and an order can be used either to enter a trade or to exit a trade. If a trade is entered with a buy order, then it will be exited with a sell order. If a trade is entered with a sell order, the position will be exited with a buy order.

For example, if a trader expected a stock price to go up, the simplest trade would consist of one buy order to enter the trade, and one sell order to exit the trade, hopefully at a profit after the price has actually risen.

Alternatively, if a trader expected a stock price to go down, the simplest trade would consist of one sell order to enter the trade, and one buy order to exit the trade. This last example, called shorting or shorting a stock, is when a stock is sold first and then bought back later.

Traders have access to many different types of orders that they can use in various combinations to make trades. Below, the main order types are explained, along with how these orders are used in trading.

Market Orders (MKT)

Market orders buy or sell at the current price, whatever that price may be. In an active market, market orders will always get filled, but not necessarily at the exact price that the trader intended. For example, a trader might place a market order when the best price is 1.2954, but other orders might get filled first, and the trader’s order might get filled at 1.2955 instead.

Market orders are used when you definitely want your order to be processed and are willing to risk getting a slightly different price. If you are buying, your market order will get filled at the ask price, as that is the price someone else is currently willing to sell for.

If you are selling, your market order will get filled at the bid price, as that is the price someone else is currently willing to buy at.

Limit Orders (LMT)

Limit orders are orders to buy or sell an asset at a specific price or better. Limit orders may or may not get filled depending on how the market is moving, but if they do get filled it will always be at the chosen price, or better.

For example, if a trader placed a limit order with a price of $50.50, the order would only get filled at $50.50 or better. In this case, a better price would be below $50.50, if it got filled at all. Limit orders are used when you want to make sure that you get a suitable price and are willing to risk not being filled at all. The order only gets filled if someone is willing to sell to you if you are buying at $50.50, or below.

If you wanted to sell at $50.50 or better—which would be above $50.50, in this case—you could use a sell limit order. The order will only be executed if someone else is willing to buy from you at $50.50 or above.

Stop Orders (STP)

Stop orders are similar to market orders in that they are orders to buy or sell an asset at the best available price, but these orders are only processed if the market reaches a specific price.

For example, if the current price of an asset is 1.2567, a trader might place a buy stop order with a price of 1.2572. If the market trades at 1.2572 or above, the trader’s stop order will be processed as a market order and will then get filled at the current best price.

Stop orders are processed as market orders, so if the stop or trigger price is reached, the order will always get filled, but not necessarily at the price that the trader intended. Stop orders will trigger if the market trades at or past the stop price. For a buy order, the stop price must be above the current price, and for a sell order, the stop price must be below the current price.

Stop orders can be used to enter a trade, but also used to exit a trade, typically called a stop loss. For example, if a trader buys a stock at $50.50, they may place a sell stop at $50.25. If the price reaches $50.25 or below, the sell order will be executed, getting the trader out of the position at $50.25 or below, limiting the loss on the position.

If a trader is short at $50.50, they may place a buy stop at $50.75 to limit their loss. If the price reaches $50.75 or above the buy stop will execute, closing the trader’s position at $50.75 or above.

Stop Limit Orders (STPLMT)

Traders will commonly combine a stop and a limit order to fine-tune what price they get. To open a trade, a trader could place a buy stop limit at $50.75. Assume the stock currently trades at $50.50. If the price reaches $50.75 the buy stop limit order will be executed, but only if the order can be executed at $50.75 or below.

This also works to initiate a short position. If the current price is $25.25, and a trader wants to go short if the price falls to $25.10, they could place a sell stop limit at $25.10. If the price reaches $25.10 the order will be executed, but only if the order can be executed $25.10 or above.

When using a stop limit order, the stop and limit prices of the order can be different. For the buying example, our trader could place a buy stop at $50.75, but with a limit at $50.78. The buy stop kicks in and buys if $50.75 is reached, but due to the limit order, the order will only buy up to $50.78. This assures that the trader buys if $50.75 is reached, but only if the market allows them to do so below $50.78.

Stop limit orders will remain pending until someone else is willing to transact at the stop limit order price(s), or better.

Market If Touched Orders

A buy MIT (“market if touched”) order price is placed below the current price, while the sell MIT order price is placed above the current price. For example, assume a stock is trading at $16.50. A MIT buy order could be placed at $16.40. If the price moves to $16.40 or below, the trigger price, then a market buy order will be sent out.

For a sell order, assume a stock is trading $16.50. A MIT sell order could be placed at $16.60. If the price moves to $16.60, the trigger price, then a market sell order be sent out.

Limit If Touched Orders (LIT)

A LIT (“limit if touched”) order is like a MIT order, but it sends out a limit order instead of a market order. For a LIT order, there is a trigger price and a limit price.

For example, assume a stock is trading at $16.50. A LIT trigger could be placed at $16.40. In addition, a limit price of $16.35 could be set. If the price moves to $16.40 or below, the trigger price, then a limit order will be placed at $16.35. Since it is a limit order, the buy will only be executed at $16.35 or below.

For a sell order, assume a stock is trading at $16.50. A LIT trigger could be placed at $16.60. In addition, a limit price of $16.65 could be set. If the price moves to $16.60 or above, the trigger price, then a limit order will be placed at $16.65. Since it is a limit order, the sell trade will only be executed at $16.65 or above.

Summary of Trading Order Types

A market order is used to enter or exit a position quickly. It will be filled, but not necessarily at the price expected, called slippage.

A limit order is used to cap the amount that is paid on a buy order or to sell at a specific price, or above, on a sell order. A stop order is used to capture a specific price or higher, on a buy order, or to capture a specific price or lower, on a sell order.

A buy stop limit order is used to buy at a specific price or lower or within a range, while a sell stop limit is used to sell at a specific price or higher, or within a range. This combines elements of the basic stop and limit order types.

Market if touched orders trigger a market order if a certain price is touched. A limit if touched order sends out a limit order if a specific trigger price is reached.

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