Before you even learn about order types, you need to understand some of the basics. First, let’s talk about positions. When you’re buying a digital asset, that means you’re looking to get in. On the other hand, if you have a position and looking to sell, it means you’re looking to get out.
Basically, when you have a position in a cryptocurrency, it means you bought it and it’s still sitting in your brokerage account or wallet. When you sell that cryptocurrency, you are flat or have no position in simpler terms. Now, let’s take a look at an example of buying and selling, as well as positions.
The simplest order type is the market order.
Let’s say John wants to buy 1 Bitcoin at $2,000. Let’s assume the current bid price is $1,999 and the current ask price is showing 1 Bitcoin for $2,000. John could enter a market order to buy 1 Bitcoin, and his order would get filled at $2,000. If John’s order was filled, he would have a position of 1 Bitcoin at $2,000. If the price of Bitcoin rises above his entry price, John would have unrealized profits. Conversely, if Bitcoin’s price falls below his entry price, he would have unrealized losses.
Now, the current bid price is the highest price that a buyer is willing to purchase the digital asset at. Conversely, the current ask price is the lowest price at which a seller is willing to sell their cryptocurrency for.
Going back into the topic, let’s assume Bitcoin rises to $3,000 and John still has his position of 1 Bitcoin at $2,000. That said, John would have unrealized profits of $1,000. John wants to sell Bitcoin only if it gets to $3,500. However, the current bid price is $3,000 and the current ask price is $3,001. Well, John is a busy man and can’t afford to stare at his screen all day. What could he do to try to sell his 1 Bitcoin at $3,500? This is where limit orders come into play.
Limit orders let you specify the price at which you’re willing to sell your digital asset. John could place a good til’ cancelled (GTX), sometimes referred to as GTC, limit order to sell 1 Bitcoin at $3,500. Therefore, unless he cancels his order to sell 1 Bitcoin at $3,500, his order would still sit on the order book until someone bids $3,500 for 1 Bitcoin.
If you don’t understand this jargon about buying and selling using market orders or limit orders, don’t worry because we’ll go over this in detail later in this guide.
However, before you even learn about the various order types out there, as well as the order book, you need to understand how to look at some charts. For the most part, nearly every cryptocurrency trader or investor who uses technical analysis also uses candlestick charts.