Stop Loss orders: what type of order to use?

Stop loss orders can help protect trading capital by closing a position when the market turns unfavorable. There are 3 different order types used when implementing stop loss orders into your trading as a risk management technique.

Stop loss refers to an order category, not a specific order type. Understanding basic and advanced order types will help you determine which type of stop loss order to use in a particular situation.

Types of stop-loss orders

There are 3 main order types used for stop loss orders:

  • Stop Market Order – A market order is a basic type of stop order that issues a market order once a specified price has been reached, called the stop price. Once the stop price has been touched or exceeded, the stop market order becomes a market order and will be executed at the best possible price. Please note that in rapidly changing markets, the best possible price may be very different from what is expected.
  • Stop Limit Order : A stop limit order is similar to a market stop order, except that when the stop price is touched or exceeded, a limit order is issued. This gives you more control over where the command will be executed, but on the other hand, it does not guarantee execution.
  • trailing stop : A trailing stop is a trailing stop loss order that “lags” behind the price if it moves in your favor. Trailing stops can only move in one direction. For example, once a trailing stop has gone up, it cannot go down. In this way, trailing stops not only serve to prevent losses, but can be used to secure profits for favorable trades.

ATM Strategies

With NinjaTrader’s Advanced Trade Management feature, traders can preset both stop loss and profit targets which are automatically sent when a position is initiated. These orders are bound by OCO, or one-cancel-another, and if a stop loss is hit, the corresponding profit target is cancelled.

ATM strategies dramatically reduce the order entry steps needed to hedge or “bracket” a position by automatically submitting all exit orders at market entry times.

ATM strategies can be configured to use stop market or stop limit orders to stop losses, as well as trailing stops using a custom stop strategy. The Auto Trail function in the custom stop strategy menu is used to create simple and complex trailing stops, which can be saved in an ATM strategy template.

Learn more about NinjaTrader’s ATM strategies in this short video overview:

There are no set rules on what types of stop loss orders to use or what levels to set them at, so it will depend on your specific trading style and methodology.

NinjaTrader’s award-winning trading software offers traders several options for order entry, including Basic Entry, SuperDOM, and Chart Trader interfaces. Get started with our free trading platform for unlimited use of advanced trading charts and trading simulation.

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