There is no incorrect way to use the orders, if you set a limit buy above the market price, then bitcoinica says to itsself 'oh shit guys we're already below that price... execute now'. if you set a stop buy (weather or not you have a position open) below the market price then bitcoinica says to itsself 'oh shit we're already above that price... execute now'.
I think there may be a fundamental misunderstanding of how the orders work,
Basically:
Limit: makes you money by executing your order when the price reaches a point in the profit direction.
Stop: cuts your losses by executing your order when the price reaches a point in the loss direction.
trailing stop: cuts your losses by a set amount(of loss), rather then at a set price.
And any of these orders can be used to open, close, increase or partially close a position.
I get the definitions of them and what they are used for but what I am confused with now is why I could use a stop order to create a new position. Why is that possible?
For example, you want to buy Bitcoins *only* when it rises above $4.5. Then you can set a stop buy order at 4.5.
In Bitcoinica, orders and positions are not linked at all. If there's any position, the system will always add/subtract from it. If there's no position, the system will create one. Whenever a position becomes zero, the P/L will be realized and it will be removed.