stop limit order

Hi all, I just joined ET. This chat forum has been very informative for me, having recently decided to trade more actively and make it my second profession. My trading experience has been limited to going long on stocks during uptrend unfortunately.

I am finding it so hard to take the plunge from just going long on my stocks (presently) to taking short positions, or even placing limit stops. I am basically a swing trader, trading on momentum over a 2-5 days cycle. To manage risks properly, I should place a sell stop order or a stop limit order each time I go long on a stock. Do I place it as soon as I go long on a stock? Alternatively I could buy a put? For example, say I am long on NT, and would like to sell if it hits $4 and ideally 4.01 and not $3.99, do I place a stop limit order or sell stop order? Can someone give me some pointers?

For those of you who have been trading for a long time and make good money I apologize for such a simple question.

I caught the bug !! up at 5am and can't wait for the market to open. Someday I hope I make as much money as some of you

 

There are almost no simple questions when it comes to trading. Perhaps a question like, "What is the symbol for IBM" would be considered simple.

Welcome to Elite Trader.

I just want to be clear about your question. Are you asking when to place your stop loss after entering a long position? And are you also asking if you should use a stop limit as your method of exit from this long?

 

whether I should use a stop limit as my method of exit from this long as opposed to a put (would be a covered put since I am long on the stock). Also can you clarify the difference between stop limit order and stop order from the perspective of risk management of my long position.

tks

 

As for using stop orders vs. puts in managing the risk in your long position I can't be of much help. If your holding period on the stock is only a few days I don't see the point in paying the spread to close out the option position. But I don't use options in this manner and may be missing something.

As for stop vs. stop limit orders to exit, it depends on what you're after. Assuming you're long and you place a sell stop order below your entry price. When the stock prints at your stop price (FYI: some brokers have different methods of triggering stops) your order becomes a MARKET order to sell. You will be filled 99.5% of the time, however it may be at a price lower than anticipated. If you place a stop limit order, your order becomes a LIMIT order to sell once the stock hits your stop price (sell, but at this price or better). This may help you sell at a slightly improved price, but if the stock drops hard it can go right through your limit price, which means you won't get a fill.

Personally, I use stop limits to enter breakout trades and I use stop orders to exit. It's just not worth it to me to have a stock open down, triggering my stop but just below my stop limit, and then plunge from there. When I want out I want out now.

Good luck in your trading.

 

thanks for the clarification and advice, it was a very helpful!
I am going to try both methods on a few trades and see how Datek/Ameritrade handles my fills. Will try your method and use stop limits to enter breakout trades and stop orders to exit.

 

To clarify my earlier post, I use profit targets in my swing trading, with a specific reward to risk established beforehand. I use stop limits to avoid "paying too much" to enter a position, which might nullify the reward I was seeking.

For example, I want to buy XYZ if it goes above 35, the close of 2 days ago. My target is 40 with a stop at 33 (R/R is 2.5). I might use a stop limit of 35.05 stop / 35.60 limit to enter. Last thing I want is XYZ to gap up to 38 and get filled there. Throws the R/R out of whack (fm 2.5 down to 0.40).

Of course if 1) you watch in real-time, or 2) your timeframe is much longer than this may not be of concern to you.

Hope I've helped.

 

got ya! tks

 

just wanted to say that today was an easier day to take the plunge and place the stop/limit order on my long positions, it sure helps to know I have protective stops on them. I plan to adjust the stops tomorrow morning if necessary. I also took some profits off the table by selling 60% of my positions and wait to see if I can still cash in on the continued run on my stock tomorrow. In the past, I sold each time way too early for fear of getting caught flat footed in the price reversal.

tks guys for your pointers!

 

Can someone here please tell me if any of the ECN's accept native stop orders for NASDAQ stocks? I am used to putting stops in NYSE because it is handled ...or mishandled by one guy. How can I put stops for NAZ stocks? Thanks

 

I believe most brokers handle stops for you on Nasdaq stocks. I use IB, and they hold the stop order on their server and execute it once conditions trigger it. I only use their "SMART" routing so I don't know if specific routing to an ECN has an effect.

Check with your broker.