To obtain the desired result from trading in the financial market, each trader needs to develop his or her own strategy. If you are not ready to be present on the platform all the time and do not want to miss potential profits, you need to find out what a Buy Limit in Forex is and how to apply it in your strategy.
An explanation of the term
A Buy Limit is a special type of pending order, which is set in such a way that allows you to purchase a certain asset at a price below the current level during a period of time. In other words, a trader expects to buy a currency pair cheaper than it is currently being traded to make more profit after selling.
Let us have a look at the following example:
At the moment, the EUR/GBP currency pair is showing an upward trend. The trader sees that there are all the preconditions for the price to reach the support line, after which there will be a retracement followed by a resumption of the upward trend. Accordingly, you should try to buy this currency pair when the retracement is formed. However, it is difficult to constantly monitor market conditions, especially since anything can happen in a split second. In this case, it is extremely important to understand what a Buy Limit in Forex is.
The current price of the currency pair is 0.7444. A pending order should be placed at the expected retracement level. If the price reaches the required limit, the broker will open a position even if the trader's terminal is closed at that moment.
Useful to know
While learning what a Buy Limit in Forex is, you will surely come across the term Buy Stop. As the name implies, the only difference between the two is that a Buy Limit is used to buy an asset at the right time, while Buy Stop suggests the future purchase of an asset at a price that is higher than the current one.
Let us consider the following situation:
Suppose a market participant believes that in the event of a sharp fall in the price, its growth will begin almost immediately, in which case the next reduction will start already from the level of the nearest local maximum. It is where a Buy Stop is set. Even with the terminal closed, if the price reverses and shows positive dynamics, the buy order will be executed.
Important to remember!
This information will help you better understand what a Buy Limit in Forex is:
Why was the order not executed?
Sometimes it happens that a trade to buy a currency pair is not initiated although the value of the asset has dropped to the level at which a Buy Limit order is set. Such a situation can occur due to a number of reasons:
Having fully understood what a Buy Limit in Forex is you will be able to apply such orders to your strategy and leave the terminal: the system will not allow you to miss out on favorable price action.
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