Stock Trading Strategies, Tips & Software | Stop & Limit Orders: Stock Trading, ETFs, Stock Options Trading

All these orders can be used to set conditions for entering or exiting positions.  This is in contrast to Market Orders where you usually get a price close to what you expect, but frequently - as with a piece in a box of chocolates - you may be unpleasantly surprised.  Stop Orders give you more control, but as they become Market Orders when triggered, surprises are possible with them also, unless they are combined with Limit Orders, i.e., unless you make them Stop Limit Orders instead of just Stop Orders.

The STOP Order

You are interested in a stock, and you want to buy it if it gets up to a certain price.  You put in a Buy Stop (Buy to Open) order.

If the price hits your price, your order becomes a Market Order, and will be filled at whatever price the Market Maker gives you.  Usually at or close to the level you specified.  But say you put in the order the night before, and the stock takes a huge jump up at the open, way up past your stop price.  Tough luck, you just bought at a much higher price than you expected.

You are short a stock, and you want to buy it back if the price rises to a level you have determined as a stop loss for bailing out of the short.  You put in a Buy Stop (Buy to Close, Buy to Cover, Buy Back) order.

If the price hits your price, your order becomes a Market Order, and will be filled at whatever price the Market Maker gives you.  Usually at or close to the level you specified.  But say you put in the order the night before, and the stock takes a huge jump up at the open, way up past your stop price.  Tough luck, you just bought back at a much higher price than you expected.

You are interested in a stock, and you want to short it if it gets down to a certain price.  You put in a Sell Stop (Sell Short to Open) order.

If the price hits your price, your order becomes a Market Order, and will be filled at whatever price the Market Maker gives you.  Usually at or close to the level you specified.  But say you put in the order the night before, and the stock takes a huge dump at the open, way down past your stop price.  Tough luck, you just sold (shorted it) at a much lower price than you expected.

You are long a stock, and you want to sell it if the price drops to a level you have determined as a stop loss for dumping it - getting out of the long position.  You put in a Sell Stop (Sell to Close, Stop Loss) order.

If the price hits your price, your order becomes a Market Order, and will be filled at whatever price the Market Maker gives you.  Usually at or close to the level you specified.  But say you put in the order the night before, and the stock takes a huge dump at the open, way down past your stop price.  Tough luck, you just sold at a much lower price than you expected.

The LIMIT Order

You are interested in a stock, and you want to buy it if it gets down to a certain price.  Buying a dip.  You put in a Buy Limit order for that price.

You are guaranteed that you will buy the stock at that price or lower, IF the order can be filled.  (In some cases, your price may be touched and reverse, and there was not enough offered at that price to fill your order.) The Buy Limit order is sort of the opposite of a Buy Stop order; where you are sometimes unpleasantly surprised with a Buy Stop order fill, you frequently are pleasantly surprised with a Buy Limit order fill.  Say the stock gaps down, either at the open or during the day from a level above your Limit order price to a level way below.  You sometimes will get filled at a much better (lower) price than you expected.

You have some stock, and you want to sell it if it gets up to a certain price.  Selling on a rally or on reaching a target.  You put in a Sell Limit order for that price.

You are guaranteed that you will sell the stock at that price or higher, IF the order can be filled.  (In some cases, your price may be touched and reverse, and there was not enough wanted at that price to fill your order.) The Sell Limit order is sort of the opposite of a Sell Stop order; where you are sometimes unpleasantly surprised with a Sell Stop order fill, you frequently are pleasantly surprised with a Sell Limit order fill.  Say the stock gaps up, either at the open or during the day from a level below your Limit order price to a level way above.  You sometimes will get a much better (higher) price than you expected.

The STOP LIMIT Order - General

The Stop Limit order is a special order combining a Limit with a Stop Order.  These are used as Stop Orders, but the Limit specification eliminates the sometimes unexpected and unpleasant fills you may get with Stop orders alone.

The Stop Limit orders are used to enter positions, either long or short, to prevent getting fills that are out of line with your expectations.

You usually do not want to use a Stop Limit order as a Stop Loss order.  You use Stop Loss orders to bail out of a position, long or short.  If you try to use a Stop Limit order to exit a position, you run a large risk of the price going past your prices, so you will still have your position, and be subject to even greater losses.

The STOP LIMIT Order - Entering a Position

You are interested in a stock, and you want to buy it if it gets up to a certain price.  But, you do not want to pay too much.  If you get the stock at too much higher a price than you want as could possibly happen with a Buy Stop (Buy to Open) order, that would cut into your profit potential when you go to sell at a hopefully higher price.  To better control your long entry price, you put in a Buy Stop Limit (Buy to Open) order.

If the price hits your Stop price, your order becomes a Limit Order, and it will be filled at a price at or below the Limit price you specified.  IF it is filled at all.  If your Stop is triggered, but the price jumps to above your Limit, you will not be filled.
See the Stop Limit area at the top of the diagram above.

You are interested in a stock, and you want to short it if it gets down to a certain price.  But you do not want to sell it at too low a price  If you sell the stock at too much lower a price than you want as could possibly happen with a Sell Stop (Sell Short) order, that would cut into your profit potential when you go to buy it back at a hopefully lower price.  To better control your short entry price, you put in a Sell Stop Limit (Sell Short to Open) order.

If the price hits your Stop price, your order becomes a Limit Order, and it will be filled at a price at or above the Limit price you specified.  IF it is filled at all.  If your Stop is triggered, but the price drops below your Limit, you will not be filled.
See the Stop Limit area at the bottom of the diagram above.

The STOP LIMIT Order - Exiting a Position

You usually do not want to use a Stop Limit order to exit a position.  Here is what could happen if you do:

You have just entered a long position, and want to set a price to exit should the price go down against you.  Instead of just a sell stop order (stop loss order), you could put in a stop-limit order.  That combines a stop price as for the stop loss, and a limit price of perhaps a few cents lower. 

Remember, a stop loss is placed for the purpose of limiting losses.  Now, if the price blows down past the limit order part of your stop-limit order -- whether at the open or during the day in a fast moving market, you will NOT get an exit from your position.  Yes, your stop will be triggered, but the limit price will prevent the sell to exit.  The price will be too low for the limit set.  You will likely have to cancel that order and put in another at an even lower price, which means that you will likely get out at a much lower price (larger loss) than if you had just used a "plain" stop loss order (sell stop order) to exit.

You have just entered a short position, and want to set a price to exit should the price go up against you.  Instead of just a buy stop order (stop loss order), you could put in a stop-limit order.  That combines a stop price as for the stop loss, and a limit price of perhaps a few cents higher. 

Remember, a stop loss is placed for the purpose of limiting losses.  Now, if the price blows on up past the limit order part of your stop-limit order -- whether at the open or during the day in a fast moving market, you will NOT get an exit from your position.  Yes, your stop will be triggered, but the limit price will prevent the buy back to exit.  The price will be too high for the limit set.  You will likely have to cancel that order and put in another at an even higher price, which means that you will likely get out at a much higher price (larger loss) than if you had just used a "plain" stop loss order (buy stop order) to exit.

A Core Position is defined as a core or basic position in a readily tradable item, including such things as precious metal (PM) bullion or coins, stocks, mutual funds, exchange traded funds (ETFs), etc.  Whatever it is you are trading will here be called the "item".

A Core Position Account comprises a quantity of the item AND a cash reserve position.  The cash reserve position enables purchases adding to the quantity of the item from time to time.  Proceeds of the sales of some of the item, from time to time, are added to the cash reserve position.  The cash reserve position enables purchases adding to the quantity of the item from time to time...

Core Position Trading™  (CPT) is defined as buying or selling, adding to or subtracting from, the core position of the item in such a manner as to, over time, increase both the amount of the item AND the cash in the account.

More about Core Position Trading

Glossary of Stock and Options Trading Terms

Core Position Trading
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Stocks and ETFs
  Stop, Limit, Stop Limit Orders

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  Options - The Very Basics
  Options Premium Intrinsic & Time Value

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