In the previous guide, we introduced the basics of take profit and stop loss orders. Let’s do a quick recap.
A take profit or stop loss order allows you to preset a trigger price and an order price. When the market reaches your specified trigger price, your order is placed at the preset order price and submitted for matching.
Think of it as a limit order with an on/off switch — the trigger price. Once the trigger condition is met, your order is launched into the market at the predefined price.
In this article, we'll dive deeper into the different statuses of take profit and stop loss orders and what each status means.
Understanding Order Statuses
Take profit and stop loss orders can have one of the following four statuses:
- Waiting
- Active
- Order Failed
- Cancelled
Let’s break down what each status indicates.
Waiting
Your order remains in "Waiting" status as long as the market price hasn’t reached the trigger price. The order is queued but not yet active.
Active
Once the market hits the trigger price, your order becomes "Active." This means it has been sent to the market for execution. Note that being active doesn’t guarantee it will be filled immediately — it depends on market conditions.
Order Failed
An order may fail if, at the moment of triggering, you no longer hold the position, or the position is already occupied by another order. When this happens, the order won’t be executed.
Cancelled
You can manually cancel a take profit or stop loss order at any time before it's triggered. Once cancelled, the order is removed and won’t be activated.
How Orders Are Executed
Let’s walk through a practical example to understand how execution works.
Assume you entered a long position at $80. The current market price is $56, and you want to set a stop loss around $55.
You can set a stop loss order with a trigger price of $55 and an order price of $53.
When the market drops to $55, your order is triggered. It is then sent to the market with an order price of $53. This means you are willing to sell as long as the bid price is at least $53. If there are matching buy orders at or above $53, your order will be filled.
This approach helps you limit losses in a declining market while still allowing some flexibility in the execution price.
Advanced Tips and Common Mistakes
While the basic concept is simple, effective use of take profit and stop loss orders requires attention to detail.
Choose Realistic Trigger Prices
Setting your trigger too close to the current price may result in premature triggering due to market noise. Too far, and you might incur larger losses than intended.
Understand Order Types
Different platforms offer various order types. Besides regular stop loss orders, there are trailing stops, conditional orders, and more. Choose the one that best fits your strategy.
Monitor Market Conditions
In highly volatile markets, prices can gap through your trigger price, leading to worse execution than expected. This is known as slippage.
Keep an Eye on Liquidity
In illiquid markets, even if your order is triggered, it may not fill at the desired price due to a lack of counterparties.
👉 Explore advanced order types and execution strategies
Frequently Asked Questions
What is the difference between take profit and stop loss orders?
A take profit order is designed to lock in gains when the price reaches a favorable level. A stop loss order helps limit losses by closing the position when the price moves against you.
Can I modify a take profit or stop loss order after placing it?
Yes, most trading platforms allow you to modify or cancel pending orders anytime before they are triggered.
Why did my stop loss order fail?
This usually happens if the position is already closed or if another order is using the same position. Ensure you have an open position and available margin when the order triggers.
What is a trailing stop loss?
A trailing stop loss automatically adjusts the trigger price as the market moves in your favor. It helps lock in profits while still giving the trade room to grow.
How do I avoid slippage on stop loss orders?
To reduce slippage, avoid placing stop losses during periods of high volatility or low liquidity. Using limit orders instead of market orders can also help.
Can I set both take profit and stop loss for one trade?
Yes, it’s common practice to set both orders simultaneously to manage risk and define exit points in advance.
Final Thoughts
Setting take profit and stop loss orders is a fundamental skill for traders. By understanding order statuses, execution mechanics, and common pitfalls, you can use these tools more effectively to protect your capital and maximize returns.
Remember, no strategy is foolproof. Always test your approach in different market conditions and adjust as needed.