Systems That Buy or Sell at the Market
Many trading systems and timing indicators yield recommendations to buy or sell at the market. In such cases, the order is exactly what the system requires; you use an at-the-market order, which, as noted earlier, has its positive and negative aspects.
Systems That Buy or Sell on Breakouts
These systems generate orders to buy on a stop or stop limit order above the market or sell on a stop or stop limit order below the market. Such systems are categorized as breakout systems, or volatility breakout systems. They define a given price area as being either resistance or support. If an SSF trades above the resistance point as determined by the system, then a long position is established in the expectation that if the market trades above the resistance point, it is likely to continue higher. Alternatively, the expectation is that if a market trades below its support point, it is likely to continue lower.
In order to be prepared for all eventualities, some of these systems enter buy stop orders above the market and sell stop orders below the market. In other words, they "bracket the market" with two orders. If you use this strategy, make certain that you cancel one side of the order as soon as the other side gets filled unless you plan to use the other order as your stop loss. For example, consider the chart in Figure 10.1.
At points A and B, the system has identified two breakout points, one on the upside and one on the downside. Therefore, an order that would be placed as a sell stop order at B would be filled on the short side, and then the order at A would either remain as a stop loss or be canceled. The same procedure would take place at points C and D. In this case, point C was penetrated and the buy stop placed at C would have been filled on the opening of 29 July. The order at D would either remain as an open order sell stop to limit a loss, or it would be canceled.
Breakout Points on Daily Chart
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