Buy Stop Order in Trading: What Is It And How It Works

What Is a Buy Stop Order in Trading?

A buy stop order is a type of entry order that tells your trading platform: "Buy this asset, but only if the price goes above a certain level."

It’s often called a stop entry order because it waits for the market to reach a specified stop price, and only then triggers a market buy.

Buy Stop Order Example

Let’s say the forex pair EUR/USD is trading at 1.1000, but you believe that if it breaks above 1.1050, it could go higher.

You don’t want to jump in too early, so you set a buy stop order at 1.1051.

If the market hits that price, your order is triggered, and you’re in the trade.

This strategy helps you buy strength, not weakness.

How Does a Buy Stop Order Work?

A buy stop order is a type of pending order that becomes active only when specific conditions are met. Mainly, when the asset’s price reaches or exceeds the stop price you’ve set.

Here’s a step-by-step breakdown of how it works:

1. You identify a key resistance level or price point that signals bullish momentum if broken.

2. You place a buy stop order above the current market price, typically just above that resistance zone.

3. The market moves upward, and when it hits your stop price, your order is triggered.

4. Once triggered, the buy stop becomes a market order, which means it will be filled at the next available price.

This could be the stop price or slightly higher, depending on market conditions and liquidity.

Buy Stop Order vs. Other Order Types

Understanding how a buy stop order compares to other types of orders is key to becoming a confident trader.

Buy Stop Order vs. Sell Stop Order

Though both are stop entry orders, a buy stop order and a sell stop order operate in opposite directions.

A buy stop is placed above the current market price, and is triggered when the price rises to that level, signaling bullish momentum. It’s commonly used when traders expect an upward breakout through a resistance zone.

On the other hand, a sell stop order is set below the current price. It triggers when the market drops to the stop level, entering a short position. This order type suits traders anticipating a bearish breakdown or continuation of a downtrend.

To put it simply, if you want to buy into strength, use a buy stop. If you want to sell into weakness, go for a sell stop.

Difference Between Buy Stop and Stop Limit

The difference between a buy stop and a stop limit order lies in how the order executes once triggered.

A buy stop order, once the market price reaches the stop level, becomes a market order and executes immediately at the next available price. This ensures entry, but there’s a risk of slippage, especially in fast-moving markets.

On the other hand, a stop limit order has two price levels:

• the stop price (which triggers the order)

• the limit price (the maximum you're willing to pay)

Once triggered, it becomes a limit order, not a market order. This means you only enter the trade if the market can fill your order at or better than the limit price.

How To Use Buy Stop Orders in Forex

In forex trading, buy stop orders are gold for breakout trading. Currency pairs often trade in ranges, and when they break out, it can happen fast.

For example, you identify resistance at 1.2500 on GBP/USD. You set a buy stop at 1.2510, expecting a momentum push.

You can set this up easily in MT4 or MT5:

1. Right-click on the chart

2. Select “Trading” > “New Order”

3. Choose “Pending Order”

4. Select “Buy Stop” and input your level

When To Place a Buy Stop Order

Consider a buy stop when:

• Price is consolidating near resistance

• You expect a news breakout

• A bullish trend is forming but needs confirmation

• You want to automate your entry while managing screen time

It’s ideal when you don’t want to guess, but react to what the market actually does.

Buy Stop Order in Trading Strategies

A buy stop order plays a key role in many trading strategies, especially those that aim to capitalize on momentum, breakouts, and trend continuations.

Breakout Trading Strategy

This is one of the most popular uses of a buy stop order.

In a breakout strategy, you first identify a resistance level, a price point that the asset has failed to cross multiple times. Once the market breaks through that resistance, it often signals strong buying momentum.

Place a buy stop order just above the resistance zone, so when the breakout occurs, the order triggers and gets filled automatically.

This allows you to ride the new trend from the very beginning without having to constantly monitor the charts.

For example, EUR/USD has been testing the 1.1000 level several times. Place a buy stop at 1.1010. If the pair breaks out, the order is triggered, signaling a likely start of an upward trend.

Trend Continuation Strategy

Buy stop orders are also used when trading pullbacks within a trend.

The idea is to wait for the price to correct slightly, then continue in the direction of the main trend. Here, you place a buy stop order above the local high of the pullback, expecting the trend to resume if that level is broken.

This method helps confirm that the uptrend is still valid, allowing you to enter with more confidence and reduce the risk of a premature entry.

For example, a stock in an uptrend pulls back from $75 to $72. The trader places a buy stop at $75.10, just above the previous high, betting the trend will continue upward if that level is breached.

News or Event-Driven Strategy

Major economic announcements or company earnings often create price movements.

Anticipating a positive reaction, you may place a buy stop order above the pre-news range, ready to jump in if the market reacts favorably.

This approach helps avoid the noise and uncertainty right at the moment of release, and instead lets the price confirm the direction before committing to a trade.

For example, before the release of U.S. Non-Farm Payrolls (NFP), you set a buy stop order 30 pips above the current range on GBP/USD. If the news is positive and price spikes, the order is triggered, capturing the move.

Technical Indicator Confirmation

If you rely on indicators like moving averages, RSI, or MACD you may use buy stop orders when price aligns with their technical signals.

For instance, a trader might place a buy stop once price crosses above a moving average or breaks out of a consolidation pattern confirmed by volume.

This allows traders to automate their setups and eliminate hesitation when multiple signals line up.

For example, a trader waits for a bullish crossover on the MACD and places a buy stop just above the recent swing high to confirm the move.

Best Practices for Using Buy Stop Orders

To get the most out of buy stop orders, always place them just above key resistance levels to confirm genuine breakouts and avoid false signals.

Pair each buy stop with a well-placed stop-loss to manage risk effectively. Make sure your setup aligns with a clear trading strategy, whether it’s breakout trading, trend continuation, or news-based entries.

Avoid setting your stop too close to the current price, which could trigger prematurely.

Lastly, test your orders in a demo account before going live, and always be aware of market volatility that might cause slippage.

Common Mistakes

If you want to use buy stop orders, make sure you avoid the following mistakes:

• Setting stop too close to current price (risk of fakeouts).

• Forgetting a stop-loss (big mistake).

• Using buy stops without a clear plan or rationale.

• Over-leveraging after entry.

• Not understanding order execution types on your platform.

Benefits and Risks of Buy Stop Orders

Buy stop orders are both beneficial but also present few risks.

Benefits

• Helps you trade with momentum, not against it.

• Automates your entries, great for busy traders.

• Aligns with technical breakout strategies.

• Reduces emotional trading decisions.

Risks

• Slippage during high volatility.

• False breakouts can trigger entries and then reverse.

• Can result in buying high if not planned properly.

Conclusion

A buy stop order is an effective tool in your trader’s toolbox. It helps you jump into strong moves with confidence, without having to sit and wait in front of the screen all day.

It’s especially effective in forex and stock trading, when combined with a solid strategy and risk management plan.