In TradeZella’s backtesting feature, users can simulate real trading strategies using three different order types: market orders, limit orders, and stop orders.
This article explains the differences between these order types and how they function in the backtesting environment.
Order Types Overview
Market Orders:
A market order executes immediately at the current market price. This is the fastest way to enter or exit a trade, as it does not wait for the price to reach a certain level.
Example: If the current market price is $2.38, placing a market order will fill your order at that price.
If the price moves to $2.39 before execution, your order will be filled at $2.39.
Limit Orders:
A limit order allows you to set a specific price at which you want to buy or sell, but it will only execute if the market reaches that price.
Buy Limit Orders: A buy limit order must be set below the current market price.
Example: If the market price is $2.38, you can set a buy limit order at $2.36. Once the price drops to $2.36, the order will be filled.
Sell Limit Orders: A sell limit order must be set above the current market price.
Example: If the market price is $2.38, you can set a sell limit order at $2.42. Once the price rises to $2.42, the order will be filled.
Stop Orders:
A stop order is triggered when the market price reaches a specified level, at which point it becomes a market order.
Buy Stop Orders: A buy stop order must be set above the current market price.
Example: If the market price is $2.38, you can set a buy stop order at $2.46. Once the price rises to $2.46, the order will be executed as a market order.
Sell Stop Orders: A sell stop order must be set below the current market price.
Example: If the market price is $2.38, you can set a sell stop order at $2.34. Once the price drops to $2.34, the order will be executed as a market order.
Important Note:
If you mistakenly place a buy limit order above the current market price or a sell limit order below the current market price, TradeZella will automatically convert them into stop orders to ensure proper execution.
Similarly, if you place a buy stop order below the current market price or a sell stop order above the current market price, TradeZella will automatically convert them into limit orders. This ensures that your orders are executed correctly based on the current market conditions.
Understanding how market, limit, and stop orders work in TradeZella’s backtesting can help you better simulate real trading scenarios and refine your strategies.
Need further assistance? Contact our support team at support@tradezella.com