SL LIMIT or MARKET

[Aki 0]

Hi all,

 

A few days ago one of the moderators shared a trade of his in which the price did an extreme low within a fraction of a second, which resulted in his exit being executed so far away from his stop-loss that he lost many many times more than his stop-loss was  designed to do.  That's why I wonder why Andrew is using MARKET orders for his stop-losses;  any input I'm grateful.

 

Aki

[Bryan 7]

Andrew uses limit orders for his exits and does not use hard stops; all manual. When you have a hard stop order, it's usually advisable to use a MARKET order, because in the case you just described, with price moving very rapidly, it can blast right through your stop price without getting filled if you have a tight LIMIT order. If it drops really fast, you might just get passed right on by while others are being filled. To avoid that a little when price is moving very quickly, my "sell all" hotkey has a 10 cent limit, whereas my partial key has a 5 cent limit. I don't use hard stops, but if I did, they'd be MARKET.

[Aki 0]

Thanks for your reply.

He posted this one two years ago, that's how I came to it:  ROUTE=SMRTL;Share=BP*0.25;TIF=DAY+;Price=ASK+0.10;BUY=Send;ROUTE=STOP;StopType=Market;StopPrice=AvgCost-0.30;Share=Pos;TIF=DAY+;SELL=Send;

 

Why would it makes a difference in respect to Limit vs Market wether you put a hard stop or a manual one, if the price shoots through?

I was just thinking that it's better *not* to get filled at a very bad price, but just keep the shares until they move up again - which in the above mentioned example was the case just after another split-second;  Usually if it shoots really fast through, it shouldn't be for a bad news, but rather for a single sell-off, no? 

Edited May 1, 2020 by Achim Keiper

[Justin 262]

23 minutes ago, Achim Keiper said:

Why would it makes a difference in respect to Limit vs Market wether you put a hard stop or a manual one, if the price shoots through?

Because on a limit order, if the price shoots through it won't fill. If you're long at $10, have a limit stop at $9.50 up to $0.05 (So you're willing to let the stop fill down to $9.45), and then the price shoots to $9.40 in an instant and keeps going down... You're not going to get filled with a limit order. It will just stay there unfilled until the price goes back to that 5 cent range.

So sure, with a market stop you will get a terrible fill around $9.40 in the scenario posted above, but at least it will stop you out at that point. The downside of a limit stop is technically infinite if it shoots past the limit stop.

[Aki 0]

5 hours ago, Justin said:

Because on a limit order, if the price shoots through it won't fill. If you're long at $10, have a limit stop at $9.50 up to $0.05 (So you're willing to let the stop fill down to $9.45), and then the price shoots to $9.40 in an instant and keeps going down... You're not going to get filled with a limit order. It will just stay there unfilled until the price goes back to that 5 cent range.

So sure, with a market stop you will get a terrible fill around $9.40 in the scenario posted above, but at least it will stop you out at that point. The downside of a limit stop is technically infinite if it shoots past the limit stop.

um thats not what I meant;  I meant I don't understand why a hard versus a manual stop should make difference in choosing between limit or market, because Bryan wrote this: "When you have a hard stop order, it's usually advisable to use a MARKET order"  and this: "I don't use hard stops, but if I did, they'd be MARKET"

and, the fill in the example above was far more terrible, I think he lost one third or so ... by the way, do you think Andrew opens two trades at the same time instead of putting the whole amount into one because of things like this?

Edited May 1, 2020 by Aki

[Justin 262]

On 5/1/2020 at 11:43 AM, Aki said:

I don't understand why a hard versus a manual stop should make difference in choosing between limit or market, because Bryan wrote this: "When you have a hard stop order, it's usually advisable to use a MARKET order"  and this: "I don't use hard stops, but if I did, they'd be MARKET"

You're misinterpreting what they mean. For mental/manual stops they also use market. The continuation of Bryan's sentence would be this "I don't use hard stops, but if I did, they'd be MARKET; just like my mental/manual stops".

On 5/1/2020 at 11:43 AM, Aki said:

do you think Andrew opens two trades at the same time instead of putting the whole amount into one because of things like this?

I don't understand what you mean by "Opening two trades at the same time"...

[Aki 0]

Hi Justin,

 

Ah, ok, thanks for clarification;

I meant that he is trading two trades at the same time ... and I wonder if he does it because he wants to prevent himself from just the case that I mentioned first - a radical price-drop of one security, which may result in a heavy loss if he puts all his money into only one trade;

Is there a recommended rule as to a maximum percentage of the account to put into one trade?  in the books I only find rules for the stop-losses when it comes to risk-management;  as if the stop-losses would always work and the price never would rush through;

And one more thing, if I may - do you know how much money he normally invests to achieve these impressive gains?

hope this is no overstressing,

 

thanks!

[Justin 262]

11 hours ago, Aki said:

I meant that he is trading two trades at the same time ... and I wonder if he does it because he wants to prevent himself from just the case that I mentioned first - a radical price-drop of one security, which may result in a heavy loss if he puts all his money into only one trade

Is there a recommended rule as to a maximum percentage of the account to put into one trade?  in the books I only find rules for the stop-losses when it comes to risk-management;  as if the stop-losses would always work and the price never would rush through;

People do trade more than one stock at the same time. Although it's not because they want to hedge one stock's win over another's loss.

You might do well to work backwards from how much you're willing to lose in a day. If your account size is $10,000 and you don't want to lose more than $100 a day (1%). Then maybe you would only risk .25% per trade, giving you 4 good trade opportunities. If you risked 1% on one trade and it went against you, you'd already be at the max amount of money you'd want to lose for the day.

11 hours ago, Aki said:

And one more thing, if I may - do you know how much money he normally invests to achieve these impressive gains?

I'd focus on what is realistic for your own situation and what you can risk. It will server you better 🙂

[Aki 0]

Quote

You might do well to work backwards from how much you're willing to lose in a day.

I'm familiar with this proceeding, but I ponder about wether it also makes sense to limit the amount for one trade for the other reason of stop-losses not being respected because prise rushing through and you get filled at half your account;

Quote

I'd focus on what is realistic for your own situation and what you can risk. It will server you better

I don't agree, because he always displays his impressive gains, so I have to put them into a frame of reference anyway. And if you don't know what percentage he makes, these numbers are wild, without any reference.

best 🙂

Edited May 3, 2020 by Aki

[Justin 262]

The type of stocks we trade here (mid float) with small spreads, rarely will blow past your stop in a substantial way. It’s just something to be aware of - it is an exception, not a norm.

His gains and losses are proportional to his account size (he’s accidentally shown it a few times in chat :P). The numbers aren’t “wild” in respect to that.

[Aki 0]

ok, thanks for your info about stops

Edited May 4, 2020 by Aki