My definition of a sell limit order used in forex trading
Okay, I got asked by my nephew "what is a sell limit order in forex"; so I chose to create this thread for any newbies who may be have the same question. I will define it in my own way.
A sell limit order for me is an automated request I input into the trading system asking it to sell when the price rises to a particular price or if that price cannot be filled, the system should sell at the next highest price available.
Now you see, I used the term highest price because you are only allowed to place a sell limit order above the current price of the instrument. If you attempt to place a sell limit order below the current price, the trading system will not let you.
It is called a limit order because it carries lower risk than a stop order. Limit orders are based on the general principle of buy low and sell high. Since I intend to sell when price is increasing the possibility that price will reverse course when it hits a resistance level is high.
If I had wanted to sell when price was falling, it would be more risky because its like trying to catch a falling knife, and I would need to use a sell stop order. So I guess you can now see the difference between a sell limit and a sell stop order.
Comments are welcome.
Sell Limit Order
A sell limit is an order you place to sell a currency pair at a higher price than the current price, because you think the price will go up first, then drop.
In short: you sell at a price above the current market, expecting it to reverse downward after reaching that level.
Example
EUR/USD is currently 1.1000
You believe it will rise to 1.1050, then start falling
You place a Sell Limit at 1.1050
What happens:
Price rises to 1.1050 → your order triggers → you sell automatically
Then price starts to drop → you can profit
If the price never reaches 1.1050, your order doesn’t execute.