A stop and reverse order (SAR) is a type of stop-loss order. Stop-loss order allows the trader to exit their trades immediately after the trades go in the opposite direction. Meanwhile, the stop and reverse order combine elements of trade and risk management.
This type of stop-loss order, however, is not always available.
The Purpose of Stock Loss Order
Before we talk about stop and reverse order, we need to understand how stop-loss order works, first. This order lets traders enter or exit a trade automatically after the price of an asset hits a certain level. It aims to limit the risks of price tanks when traders were unaware of it.
When We Can Use Stop And Reverse Order?
Stop and reverse order is actually the extension of a stop-loss order. As the name suggests, it is used when traders want to quickly reverse their position.
For instance, a trader uses this order if he is currently in a long trade, but he wants to exit that trade and enter the short trade at the same price.
Of course, you can do that same process manually. You can exit your existing order, then place an entry order. However, it is more efficient and streamlined. It puts both entry and exit activities in a single order.
How does it work?
This order not available in most of the brokerage of any exchange since it is not the standard order type. Thus, it usually only used by traders trade using trading software or order entry software.
Moreover, the implementation also can significantly vary. Yet all of those will bring the same end, getting a new trade in the opposite direction.
Yet, not all software also provides that type of stop-loss order. If yours now does not provide it, then you can create a stop and reverse order manually, by doubling the contracts, lots, or shares in your stop-loss order.
For instance, if a trader has one contract in a long trade, a stop-loss order placed for two contracts will exactly function like this order.
Also read: Stop-Loss Order in Day Trading
