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Limit vs Stop Orders

  • #41
  • May 21, 2008 12:23am May 21, 2008 12:23am
Excellent clarification of the stops Scott ....

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now we might see Math Man vs Magic Man

Place your bets gentleman !
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I guess not many people understand the stop orders causing many to enter market using astronomy instead of stop orders
  • #42
  • May 21, 2008 12:34am May 21, 2008 12:34am
Quoting Syafi
Excellent clarification of the stops Scott ....

-----------
now we might see Math Man vs Magic Man

Place your bets gentleman !
-----------

I guess not many people understand the stop orders causing many to enter market using astronomy instead of stop orders

I thought the astronomy choice was hilarious!

Actually, I'm now trying to contact Merlin on an entirely different subject, but he doesn't take PMs.

Merlin, helllp!!! LOL

I'll try email.
  • #43
  • May 21, 2008 12:38am May 21, 2008 12:38am
Bleh. Time for bed.
  • #44
  • May 21, 2008 1:08am May 21, 2008 1:08am
Quoting capitalist88
I thought the astronomy choice was hilarious!
........
Its there for a reason,
well even Gann enter market using some sort of astrological/biblical indication
  • #45
  • May 21, 2008 5:15pm May 21, 2008 5:15pm
Quoting capitalist88
That's all correct. There are market orders, limit orders, stop orders and stop-limit orders. Stop orders, when triggered, become market orders. Stop-limit orders, when triggered, become limit orders.
capitalist, do you understand that "stop" really means "stop-market"? stop is just trader shorthand for stop-market, as illustrated on my IB link and your NYSE link. NYSE doesnt even list stop as a stand alone order, they pair it with market and limit only, which is technically the correct way to do it.

the argument you are trying to make is that “stop” is a primary order type, along with market and limit. my argument is that there are only two major order types, market and limit. knowing that stop really means stop-market, how can you say that a stop order is not a derivative of market or limit? we have stop-limit and stop-market, it IS a derivate plain as day!

Quoting capitalist88
Not on the NYSE you don't unless they've relaxed that restriction.
ive used limit orders like this for many years on the nyse stocks. i would be amazed if you showed me some documentation that says this is, or has ever been disallowed. it wouldnt make any logic sense, it would be hurting the traders and helping the brokers which is not something the regulatory bodies like to do.

Quoting capitalist88
Now let me illustrate why a stop order and a limit order are fundamentally different.
that should be pretty easy to do, one is a market order and the other is a limit order. LOL
Quoting capitalist88
Here's a quiz:

D. Stop order at 94.50
D works, but you could also place a buy stop-limit at 94.50:95.00 which would be a lot safer. you would most likely get filled even if the market ran through your order, but you guarantee not to get filled worse than 95.0. if you got to your client and tell him you are filled at 96.50, he will be more pissed than if he missed the trade LOL
Quoting capitalist88
C. Neither of the above will work so there must be a third kind of fundamental order type.
again, you cant possibly disagree that a stop-market is a derivative of market order. you just said a few posts ago that the trade is filled no matter what. sounds a lot like a market order to me

capitalist, my friend, i could go on and on about this, but it would be a lot easier if you just admit youve been mistaken on what “stop” means
Relax and be happy.
  • #46
  • May 21, 2008 5:20pm May 21, 2008 5:20pm
Quoting Syafi
I do this all the time...and its good.
yes thats it it gives you the execution speed of a market order with slippage protection. this is how a professional trader enters a fast moving market!
Relax and be happy.
  • #47
  • May 22, 2008 5:37am May 22, 2008 5:37am
Quoting merlin

capitalist, my friend, i could go on and on about this, but it would be a lot easier if you just admit youve been mistaken on what “stop” means
LOL, I went over this in the rest of the posts. We both agree on the definitions. I know "stop" means "stop market" which in turn means, "this is a market order, but STOP the transmission of the order to the floor until the price gets to such and such a level." But the way to look at it is that a stop order BECOMES a market order if it's ever triggered, not that a stop order is a "type of market order."

It's just a matter of classification. You're calling stops a type of market order. I don't classify it that way, because a market order by definition is filled at the next available price. Market orders are filled immediately, while stop orders and limit orders might sit on the books for a month before being filled (if ever).

So I (and the NASD and NYSE) put market orders in its own category, namely "orders that fill right now". Limits and stops are in another category, "orders that may or may not fill at all". And in that category, stops and limits have opposite intentions and effects.

Stops are for momentum players; buy when it's going up and sell when it's going down.

Limits are for contrarians; buy when it goes down and sell when it goes up.

A picture is worth a thousand words, so here's the way the Series-7 curriculum classifies order types (wrt price instructions; there are other things like Time In Force that fall under "order types" too).

Attached Image
  • #48
  • May 22, 2008 6:37am May 22, 2008 6:37am
Quoting merlin
ive used limit orders like this for many years on the nyse stocks. i would be amazed if you showed me some documentation that says this is, or has ever been disallowed. it wouldnt make any logic sense, it would be hurting the traders and helping the brokers which is not something the regulatory bodies like to do.
You can see it for yourself tomorrow. GE is trading at about 32. Put in a limit order to buy it at 35 and I'll be surprised if they take it. They'll think it's an error and that you meant to put in a stop order.

Then again, I checked the NYSE site and there is no more mention of the distinction between limit orders and "or-better" orders like there used to be. Since they merged with AMEX and got some real technology, then merged with EURONEXT, all the old weird archaic rules are gone now. The only reference I could find on the net about this issue was at this site:

http://www.betterfutures.com/orders.htm

"Or-better Order

This order is of importance to you only if you trade with a discount firm. It is used in the following situation:
Gold is trading at 290, and you like to buy at the market, but worry about getting filled at a higher price. You place a limit order, instead of a market order as follows "buy at 290.50". This limits the fill you might receive to 290.50. The floor broker who executes your order will understand what you are trying to achieve. Now, there is a problem that could possibly arise: what if you move your limit even further away, such as 291, or 292, or 293. There comes a point, when the floor broker no longer executes this order as a limit order. He may suspect that the order was given in error, and that it was meant to be an order to "buy at 293 stop". He will then reject the order. How much room will he allow before calling it an error? That depends on the market and the volatility of that day.
To avoid this problem, you should make the order read "buy Dec Gold at 293 or better".
If you have an account with a full-service broker, you don't have to be concerned with this issue. Your broker will automatically chose the right form of order."
  • #49
  • May 22, 2008 6:41am May 22, 2008 6:41am
But never mind all that. Did you get my freakin' email??? I sent it yesterday.
  • #50
  • May 22, 2008 7:00am May 22, 2008 7:00am
My My,.............

what was intended to be a question about which ought to be better used.

1- STOP order ( stop market ) to enter when market go back to your direction after retrace etc or

2- Limit order, to enter market when it retrace before it move in your favorable direction .

become order type clarification thread

Back to topic please
  • #51
  • May 22, 2008 1:35pm May 22, 2008 1:35pm
Quoting Syafi
My My,.............

what was intended to be a question about which ought to be better used.

1- STOP order ( stop market ) to enter when market go back to your direction after retrace etc or

2- Limit order, to enter market when it retrace before it move in your favorable direction .

become order type clarification thread

Back to topic please
But people are still voting in your poll. My guess is that most people voting think of stop and limit orders just as you intended. They represent two opposite trading strategies (limits=contrarian vs. stops=momentum) which was (I think) the original intent of the thread.

So far, the contrarians are beating the trend followers by 13 to 10.
  • #52
  • May 22, 2008 10:17pm May 22, 2008 10:17pm
yes people only vote on stops after those post explaining how it work.

before it, it was
stop 0
limit 7
astronomy 7



Hope to see how others using stop orders to enter market on momentum
  • #53
  • May 22, 2008 11:44pm May 22, 2008 11:44pm
Quoting Syafi
yes people only vote on stops after those post explaining how it work.

before it, it was
stop 0
limit 7
astronomy 7



Hope to see how others using stop orders to enter market on momentum
I agree, that's really the way to do it. My major strategy is contrarian in that I'm always trying to position a series of multiple orders to buy when price is low and sell when it's high. However, trying to do this with limit orders is disasterous, because it ends up being an average down strategy; drawdowns are awful.

So even though my STRATEGY is contrarian, I now use the momentum-following TACTICS of placing stop orders "behind" the price as it moves one way or the other. Then the orders don't fill until the price has already turned around and is heading my way.
  • #54
  • May 25, 2008 5:28am May 25, 2008 5:28am
It's a good thing merlin brought that up, because it is much more important to begin understanding what these order types mean than it is to debate entries on the basis of an incorrect understanding.

The confusion often arises because of this notion of "pending" market orders, i.e orders that are executed as market orders once the price has reached the stop. The direction of movement (and the position relative to the current price) is completely irrelevant - this is just an invention by the brokers to avoid novice traders getting shot in the foot when they try to do the better-than move you guys were talking about. And it's a good thing they do this. Imagine how much more populous the broker-bitching forum would be if people discovered the difference between the better-than technique, and the pending market orders the HARD way. It would be very entertaining, to say the least.

In short: things are exactly as merlin describes. You can either buy/sell at a price you limit the broker to (executed if he is able to do it, and he will try, because they are rewarded with spreads), or you can buy/sell at whatever price the market offers (hence certainty in getting a fill). Whether you enter now, or in 2 days time, or "if the price reaches X" is all a completely separate issue, and is really just an additional feature provided by your broker, because it allows you to not be glued to your screen and enter a trade. In other words, "stop orders" are just automated market orders. That is why they are kept client-side in most platforms... there is no book for market orders that haven't been "entered" yet. Compare with the limit-order book, the aggregate of which becomes the currency exchange, and you will see the light

Now back to Syafi's question, you are basically asking about the ideal direction of entry, not order type. Thanks to the discussion, the reader hopefully sees why we are talking about direction and not type. That's why it was so important to clear that mess up - we can't talk meaningfully otherwise.

Is it "better" to go with the market when it swings back your way, or BEFORE it goes the direction you think it will? I think the answer is not easy, because the more the market moves your way the later your entry will be. This means:
a) less profit (than the unconditional entry) if you are right
b) more loss if you are wrong
However, the market moving "your way" first is the best indicator in the world of position trading that you are "right". In fact, it is possibly the only indicator in the world. If you do not wait for the market, then you are picking bottoms/tops, and he who pick bottom get smelly finger (copyright 2007 philmcgrew).

My opinion is that you should never enter or exit a trade without being in front of the chart yourself, or without the market displaying clear signs of moving in your favored direction. And like the magic man said: use limit orders, bitchez. Hope this helps

Quoting Syafi
My My,.............

what was intended to be a question about which ought to be better used.

1- STOP order ( stop market ) to enter when market go back to your direction after retrace etc or

2- Limit order, to enter market when it retrace before it move in your favorable direction .

become order type clarification thread

Back to topic please
Virtue finds and chooses the mean. Aristotle, Ethica Nichomachea
  • #55
  • Edited 7:13am May 25, 2008 6:49am | Edited 7:13am
Quoting Plutonite
It's a good thing merlin brought that up, because it is much more important to begin understanding what these order types mean than it is to debate entries on the basis of an incorrect understanding.
I totally agree

Understanding what you are into is the key to survive and the key to thrive.
as I said earlier. the poll got good response only after the post by merlin and capitalist which describe what those order type mean.

as Merlin says there is only 2 majer order type.
Market and limit.
Stop is simply a pending market orders

Quoting Plutonite

Now back to Syafi's question, you are basically asking about the ideal direction of entry, not order type. Thanks to the discussion, the reader hopefully sees why we are talking about direction and not type. That's why it was so important to clear that mess up - we can't talk meaningfully otherwise.
Yes exactly

Quoting Plutonite
Is it "better" to go with the market when it swings back your way, or BEFORE it goes the direction you think it will? I think the answer is not easy, because the more the market moves your way the later your entry will be. This means:
a) less profit (than the unconditional entry) if you are right
b) more loss if you are wrong
However, the market moving "your way" first is the best indicator in the world of position trading that you are "right". In fact, it is possibly the only indicator in the world. If you do not wait for the market, then you are picking bottoms/tops, and he who pick bottom get smelly finger (copyright 2007 philmcgrew).
Both entry is bad entry then

If go by the direction with stop orders (stop market/stop limit)
then you get less profit and possibly more loss

If you go by not waiting you are catching flying arrows and knives by picking Tops and bottom.

Ooooooooooo Boy.


Quoting Plutonite
My opinion is that you should never enter or exit a trade without being in front of the chart yourself, or without the market displaying clear signs of moving in your favored direction. And like the magic man said: use limit orders, bitchez. Hope this helps
If i understand correctly, Merlin advocate usage or Limit orders in a sense that can be used on STOP Limit as well ...

the order that will execute AFTER the price move in your direction and at a Better then the Limit . Stop Limit.
  • #56
  • May 26, 2008 12:31am May 26, 2008 12:31am
merlin, is it time for an "Order types debunked" thread?
  • #57
  • May 27, 2008 3:37pm May 27, 2008 3:37pm
Quoting capitalist88
A picture is worth a thousand words, so here's the way the Series-7 curriculum classifies order types (wrt price instructions; there are other things like Time In Force that fall under "order types" too).

Attachment
the only thing that picture is worth is a thousand confusions

first of all you CAN get an immediate fill with a limit order. that itself busts your whole diagram. if you can show me a diagram like that from a series 7 book i will fall out of my chair and break both hips! LOL

capitalist, this whole debate comes down to what your definition of a "derivative order" is. clearly a stop-market is both a stop and a market order together. so stop-market is clearly a derivative order... but is it a derivative of a market, or a stop? if you want to say market order is a derivative of a stop order, then fine, ill let you get away with that complicated thinking. but to say that stop-market is not a derivative at all is just plain illogical.

the correct way to diagram this is to put market and limit at the top, and show the 10-20 derivative orders below them (market and limit share many of the same derivatives). this will lead to total understanding of any order, even one youve never used before.

you with me yet?
Relax and be happy.
  • #58
  • May 27, 2008 3:40pm May 27, 2008 3:40pm
Quoting capitalist88
You can see it for yourself tomorrow. GE is trading at about 32. Put in a limit order to buy it at 35 and I'll be surprised if they take it. They'll think it's an error and that you meant to put in a stop order.
why would i buy GE? LOL

if you put the order THAT far away, then yeah maybe your broker will think you are making a mistake. i dont do that so i wouldnt know. i do know you can put your buy limit a few ticks above the best offer, and thats all i need for instant execution with a limit order.
Relax and be happy.
  • #59
  • May 27, 2008 3:41pm May 27, 2008 3:41pm
Quoting Plutonite
You can either buy/sell at a price you limit the broker to (executed if he is able to do it, and he will try, because they are rewarded with spreads), or you can buy/sell at whatever price the market offers (hence certainty in getting a fill). Whether you enter now, or in 2 days time, or "if the price reaches X" is all a completely separate issue, and is really just an additional feature provided by your broker, because it allows you to not be glued to your screen and enter a trade. In other words, "stop orders" are just automated market orders.
im not the only one who gets this
Relax and be happy.
  • #60
  • May 28, 2008 5:06pm May 28, 2008 5:06pm
Quoting merlin
the only thing that picture is worth is a thousand confusions

first of all you CAN get an immediate fill with a limit order. that itself busts your whole diagram. if you can show me a diagram like that from a series 7 book i will fall out of my chair and break both hips! LOL

capitalist, this whole debate comes down to what your definition of a "derivative order" is. clearly a stop-market is both a stop and a market order together. so stop-market is clearly a derivative order... but is it a derivative of a market, or a stop? if you want to say market order is a derivative of a stop order, then fine, ill let you get away with that complicated thinking. but to say that stop-market is not a derivative at all is just plain illogical.

the correct way to diagram this is to put market and limit at the top, and show the 10-20 derivative orders below them (market and limit share many of the same derivatives). this will lead to total understanding of any order, even one youve never used before.

you with me yet?

LOL, this would be an interesting debate for a psychologist to read I think.

We're both in agreement on all the facts, i.e. the definitions of the orders and how they actually work in the market. We both know which will fill and which won't in any given situation. All we're disagreeing on is a classification scheme.

It's like scientists arguing about tomatos. They all agree that tomatos are red and have acid in them. But are they fruits or vegatables? Do you pronounce it tomaaahto or tomato? These last two questions aren't questions of fact...they're just definition/classification questions.

So you're using a classification scheme based on a hierarchy of concepts. Market orders and limit orders are the two most basic concepts, and you build up from there. In order to understand stop orders, a person first must understand market and limit orders. That's a perfectly reasonable way to think about it.

But I'm using a classification system that's concerned not with the hierarchy of concepts, but with the difference in behavior of the orders (under what conditions will it fill or not fill). This distinction is crucial to a broker explaining to a customer what will happen. That's why the Series-7 teaches it that way, although they present the concepts in the order that you're talking about; market first, then limits, then stops.

Also, the way I'm classifying them is more useful in thinking about market dynamics. Stop orders clustered around a certain price will extend an existing trend from that price. Limit orders will tend to end the trend, creating an S/R level.

So which classification system is "correct?" Neither. Both. Tomato. Tomaaaahhhto.
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