Yes. I should have been clearer in my first post. I meant stop limit order. Now I know that putting a stop limit order can turn out to be disastrous if the price opens gap down the next day (as per the example cited in my first post). Thanks once again for the clarification.
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Question About Stop Loss
- Thread starter trucaKe4
- Start date
Yes. I should have been clearer in my first post. I meant stop limit order. Now I know that putting a stop limit order can turn out to be disastrous if the price opens gap down the next day (as per the example cited in my first post). Thanks once again for the clarification.
Just bear with me as I am going to slightly reword my original question.
I put a buy limit order of 100 for a stock at 1070.35. Please assume that this trade gets triggered. Instead of putting a stop loss / stop limit order, I just put a sell limit order of 200 at the price 1062.50.
The idea is - I just want to be in the trade - regardless of whether the price is going up or down. If it goes up from 1070.35, it is all well and good. If the price touches 1062.50, then the short trade should get initiated automatically. That is why i am putting sell limit of 200 @ 1062.50.
Now the next day, the price opens gap down @ 1059.25. And it keeps on going down without ever touching 1062.50. Will the sell limit order of 200 @ 1062.50 get triggered in this case?
If the price gaps down, will the trade @ 1062.50 get triggered? Or it wont?
I put a buy limit order of 100 for a stock at 1070.35. Please assume that this trade gets triggered. Instead of putting a stop loss / stop limit order, I just put a sell limit order of 200 at the price 1062.50.
The idea is - I just want to be in the trade - regardless of whether the price is going up or down. If it goes up from 1070.35, it is all well and good. If the price touches 1062.50, then the short trade should get initiated automatically. That is why i am putting sell limit of 200 @ 1062.50.
Now the next day, the price opens gap down @ 1059.25. And it keeps on going down without ever touching 1062.50. Will the sell limit order of 200 @ 1062.50 get triggered in this case?
If the price gaps down, will the trade @ 1062.50 get triggered? Or it wont?
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Many issues here.
1. If you go long at a price, you need to sell that long before going short, if you did buy the long.
2. You'll only make a trade/deal when another market participant agrees to your price during the limited period you make the offer. Your trigger-price only says at what price level your order should activate. It depends on your order price, wether anyone at that time wants to make a deal with you or not. Often price gaps beyond your buy/sell "triggers" (order price), but go back again to fill the gap, so you get filled within the day. Other times, you don't get filled so quickly. Sometimes you never get filled, so need to plan for that as well. Now if your order price is a bargain at that time your trigger activates, there's much higher chance you get the deal quickly. Sometimes worth it to reduce risk or not miss a good trade.
3. If you just sell at 1062.50 and current price on exchange is much higher, you'll just sell it away at once (bargain), so won't stay in the trade. You'll most likely get a better price than what you offer because of matching-criterias in the exchange (not sure on details inside exchange, but you can get better prices than you offer because of the order book). Don't think this is what you want to do though. So either you use triggers, manually specify sell&short orders or automate.
It's easier if you can simulate or try it with small money, because you're bound to have those experiences when trading. It's about the mechanics of execution and best way to learn is to get real experience with it, but lose little. Maybe someone can recommend a book, but until you've had those annoying experiences, there'll be something missing from your trade executions.
1. If you go long at a price, you need to sell that long before going short, if you did buy the long.
2. You'll only make a trade/deal when another market participant agrees to your price during the limited period you make the offer. Your trigger-price only says at what price level your order should activate. It depends on your order price, wether anyone at that time wants to make a deal with you or not. Often price gaps beyond your buy/sell "triggers" (order price), but go back again to fill the gap, so you get filled within the day. Other times, you don't get filled so quickly. Sometimes you never get filled, so need to plan for that as well. Now if your order price is a bargain at that time your trigger activates, there's much higher chance you get the deal quickly. Sometimes worth it to reduce risk or not miss a good trade.
3. If you just sell at 1062.50 and current price on exchange is much higher, you'll just sell it away at once (bargain), so won't stay in the trade. You'll most likely get a better price than what you offer because of matching-criterias in the exchange (not sure on details inside exchange, but you can get better prices than you offer because of the order book). Don't think this is what you want to do though. So either you use triggers, manually specify sell&short orders or automate.
It's easier if you can simulate or try it with small money, because you're bound to have those experiences when trading. It's about the mechanics of execution and best way to learn is to get real experience with it, but lose little. Maybe someone can recommend a book, but until you've had those annoying experiences, there'll be something missing from your trade executions.
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For the forex trader, the stop loss is one of the best risk management technique he can use. This allows him not to lose more than he can afford by closing the trade once prices fall to the stipulated levels.
OP I had tried a system like you are describing thinking that if my stop gets hit I MUST be wrong. But most times that may not be the case. The market sometimes has to digest a bit and churn a bit before setting off in the intended direction. If you set your stops thinking if it gets hit I Want to go short you will die a slow painful death by 1000 paper cuts not to mention all the transaction fees you will incur in the process. Why do you believe the market is telling you to short simply because your stop got hit? Can't it just be retracing to test support again and give you an even better price to go long? Don't believe you will make money in that retracement. Often times you buy at support but there is a RANGEvand support may test at the top of that range and then retest again at the bottom but trigger your stop in the process both going long and going short as it takes off up again. Lastly, don't just arbitrarily choose 100 shares. Depending on if your stop is .10 away or .15 away you will lose different amounts every time. Set your stop and THEN calculate shares from how far away stop price is from entry price. That way you keep $ risk constant to whatever you deem appropriate.
For the forex trader, the stop loss is one of the best risk management technique he can use. This allows him not to lose more than he can afford by closing the trade once prices fall to the stipulated levels.
Exactly. I had to post these questions because order execution is not much of an issue with forex trading.
For instance, I buy 2500 units of EUR/USD @ 1.10474. Instead of placing a stop loss / stop limit order, I just place a sell limit order of 5000 units @ 1.09863. If the price ever touches 1.09863, a short trade gets triggered automatically; while closing the long trade @ 1.10474. In this case, if the price ever touches 1.09863, I would be short 2500 units @ 1.09863. In other words, I will always be long / short 2500 units - regardless of whether the price is going up or down. Oanda allows traders to put in 'units'.
I was curious to know why I cannot utilize the same setup in the traditional futures markets.
Again that's the exact method I suggest you paper trade before using real money. Most people will tell you it is a slow chewing away of your account. A stop loss being triggered does NOT mean market is reversing. What if you just had bad stop placement? Why go short now and compound the issue? Paper trade it before you do that and you will see. Use historical data and prove to yourself it works... I think you will see it does not.Exactly. I had to post these questions because order execution is not much of an issue with forex trading.
For instance, I buy 2500 units of EUR/USD @ 1.10474. Instead of placing a stop loss / stop limit order, I just place a sell limit order of 5000 units @ 1.09863. If the price ever touches 1.09863, a short trade gets triggered automatically; while closing the long trade @ 1.10474. In this case, if the price ever touches 1.09863, I would be short 2500 units @ 1.09863. In other words, I will always be long / short 2500 units - regardless of whether the price is going up or down. Oanda allows traders to put in 'units'.
I was curious to know why I cannot utilize the same setup in the traditional futures markets.
Either way good luck