stop orders do you use them
- Thread starter mnx
- Start date
My protection is in the form of small positions, never risking more than a couple percent of capital, worst case, on any one issue. I like systems with a higher win percent for the same reason, less worry about stops. I trade some illiquid issues at times and kind of wonder if stops would work for me or against. If price manipulation is easy then running my stop is easy, if I keep the stop on my computer and issue a stop market type order for a fast exit I am not likely to get the price I would like, a stop limit can get passed by, better to let all the stops get run and exit the thing a day or two later at breakeven, if that fails I just toss in my cards and cash out and put the money back to work somewhere else.
I trade options and use stop orders. Options markets' wide slippage makes this more challenging, but I see stop orders as a form of insurance, protecting me from gaps and "black swan" events. I'm using mostly stop-limit orders with an allowance for slippage, but my stops are not hit often because I exit with limit orders when my trade doesn't seem to cooperate.
if you think stop limits will protect you from gaps or black swan events you have a lot to learn.
. Pay attention!cnms2 said: ...but I see stop orders as a form of insurance, protecting me from gaps and "black swan" events...
I don't see any other way to read this. Stops will not protect you from gaps unless you, somehow, have someone willing to give you a guaranteed fill.
For example, if you sold GP Nov 35 calls for 0.40 Friday, and you have a buy stop at 1.00, and the underlying opens where it's trading at the moment (47.65), those calls will open north of 12.00, which is where you'll be covering with your stop-market order, losing at least 11.60. If it's a stop-limit at 1.00/1.25, you'll still be short and have a useless buy order at 1.25 (assuming your not bankrupt, and get bought in by your broker :| ).
I don't see any other way to read this. Stops will not protect you from gaps unless you, somehow, have someone willing to give you a guaranteed fill.
For example, if you sold GP Nov 35 calls for 0.40 Friday, and you have a buy stop at 1.00, and the underlying opens where it's trading at the moment (47.65), those calls will open north of 12.00, which is where you'll be covering with your stop-market order, losing at least 11.60. If it's a stop-limit at 1.00/1.25, you'll still be short and have a useless buy order at 1.25 (assuming your not bankrupt, and get bought in by your broker :| ).
I think, and I hope he means, "partially protecting", rather than "protecting". Sometimes stops help protect. Sometimes, they don't. I think he's guilty of poor semantics, but he doesn't deserve to be ridiculed.