TIP: Creating Stop Limit/Market Orders to enter a trade 

 November 12, 2019

By  ejbc4

Sometimes you can’t sit at your desk all day or monitor all tickers to enter a trade, but you know you want to take an action if something breaks out over or below a level.

Stop orders aren’t just for exiting a trade.  They can also be used to open a trade.  There are 2 parts to a stop order.  The price an order gets triggered at and the price to try to fill an order at.  In the case of stop market, it will be like executing a market order, in the case of a limit order, it like saying if a price moves past my trigger price then open a limit order to fill me at a specific price or better.

Here is an example from RETA today.

Thesis: bids at 199-200 buying but if Low of day at 197 breaks,  then I want to enter short.  So just like you create a stop order to exit a trade your broker should allow you to create a stop order to open a trade.  In this case a stop limit sell order set at 197.50 and limit at 196.50 (thinking if it broke 198, 197 likely breaks too)..  What this does is says fill me if a transaction at or below 197.50 happens and I’m will to enter between above or equal to 196.50.  Depending on your broker you might be able to bracket this order too, meaning set a stop profit and stop loss on the order.

Ok so now you say “but spectre, I only trade options”  Well this is where it gets tricky.  You have to calculate and anticipate what prices an option contract may transact at.  If it is not very liquid, you may not get filled at a reasonable price or be able to enter at all.

I’ve used stop limit orders on SPY before.  For example say you saw SPY today push over vwap and and said if it breaks below 309.30 I want to buy puts.  you can anticipate what price 309 puts will be at on the break and place a stop market or stop limit order near that price.  so if 309 puts went from .25 to .45, you can place a stop market order at .40 and may get filled at .40-.45.

I’ve used this technique to enter positions after key levels break on news.

There is another technique you can use with Stop limit orders for entry.  They are great for retracement entries.  say you are anticipating a key level of 20.30 to breakout, and it pops 20.50, but this ticker likes to be rangy, so you can create a stop limit order to be triggered at 20.40 but a limit entry at 20.10, so the thinking being if it breaks out over 20.30 and then retraces to 20, you can get in at a good risk/reward price.  If it drops 19.90 you can cut it.  much better to be wrong and lose .20 vs entering at 20.50 and losing .60.

Hope this tip helps and wasn’t too confusing.  Please send me a DM on Twitter or Discord if you have more questions.

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

Subscribe to our newsletter now!