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2005issue C101

Precommit a stop-loss at entry with pivot triggers

The archive asks that the acceptable loss be known when a position opens, that the stop-loss be entered at that time, and that it be left in place. A stop-market order at a prior pivot can close the loss side, while a limit order is reserved to take profit at a target.

  • Know the acceptable loss when the position opens, enter the stop-loss order at that time, and leave it in place.
  • A stop-market order at a prior pivot point on the underlying chart can close the position when that level breaks.
  • A limit order belongs on the profit side so that reaching a target closes the trade.
  • A mental stop that is never entered depends on monitoring and discipline, and moving the stop after adverse movement defeats its purpose.
Entries in this reading3 entries
Current trackLimit order51 readingsPivot point53 readingsStop-loss order297 readings

Stop placement has no single method

The archive describes stop placement as having no single correct method. Where the stop sits is allowed to vary with market volatility, time horizon, risk tolerance, ability to monitor the market, and trade type.

A stop-loss may be set as a contingent order on a chart level of the underlying, as a percentage loss, or as a stated number of points. In each form, a stop-loss is an order or rule that closes a position when a pre-set loss, price, or exposure bound is reached.

Enter the order and leave it

The advocated sequence is to know the acceptable loss when the position opens, enter the stop-loss order at that time, and leave it in place.

Unentered mental stops require time and discipline, because a planned exit that is not a live order depends on continuous monitoring and self-discipline. Shifting a stop after adverse movement is described as defeating the purpose of a stop-loss.

A pivot as the loss-side trigger

Stop market orders can be placed on the loss side at prior pivot points on the underlying chart, with a break of that level used to close the position. A pivot-point is a prior turning level on the underlying chart that can serve as the trigger for a stop-market exit.

A stop-market-order becomes a market order once the stop price is reached. When the trigger is a chart price of the underlying rather than a printed option premium, the stop is a contingent-stop: it fires when the underlying reaches the chosen chart price rather than when the option itself prints a given premium.

Limit orders stay on the profit side

Limit orders can be used on the profit side so that reaching a target closes the trade. A limit-order executes only at a specified price or better, and here it is used to take profit when that target is reached.

Closing a mixed long-and-short spread

A mixed long-and-short option spread can be closed by an offsetting transaction that buys back the short options and sells the long options to flatten the spread.

Letting both legs expire worthless is presented as a viable exit for some credit spreads when the underlying stays beyond both strikes through expiration. A credit-spread collects net premium up front and can be allowed to expire worthless if the underlying stays beyond both strikes.

Exercise and assignment is described as the least common of three spread-exit paths, and assignment risk is often handled by closing through an offsetting trade.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
6 of 20 in the Limit order track
20061-5 pp.Next on Limit orderMechanical systems need fill-aware failure modesA mechanical trading system is one testable procedure that turns rule inputs, market state, and execution constraints into entry, exit, or abstention signals.
All readings on this track · 20 readings
  1. 1994Cash-first stops beyond crowded landmarks
  2. 1996Index spread pairs with seasonal filters and limit orders
  3. 2003Precommit the stop and limit after a rule-based entry
  4. 2005Limit orders, routing paths, and commission tradeoffs
  5. 2005Bracket orders that precommit stop and target exits
  6. 2005Precommit a stop-loss at entry with pivot triggers
  7. 2006Mechanical systems need fill-aware failure modes
  8. 2006Ranking near-term support for ETF limit entries
  9. 2007Precommit futures stops and limits with contingent orders
  10. 2007Overnight option limit fills, stops and trailing exits
  11. 2010Seasonal commodity windows and stop-limit fill risk
  12. 2011Routing fees, do-not-ship flags, and maker-taker limit orders
  13. 2011A three-bar inside-bar commodity setup still needs portfolio context
  14. 2012Limit orders when a tick saved costs the fill
  15. 2013Futures platform order entry and per-trade fees
  16. 2013Iceberg hidden size and option-spread packages
  17. 2014Marketable limits, directed venues, and spread filters
  18. 2015Filtering commodity option liquidity by spread, not open interest
  19. 2015Paired range-bar averages and next-bar limit exits
  20. 2019Uneven-wing modidor as one limit package
By fieldStops and loss limits76 readingsBy year2005167 readings
All 51 readings tagged Limit order
Also on Limit order5 readings
2006Ranking near-term support for ETF limit entries1994Cash-first stops beyond crowded landmarks2003Precommit the stop and limit after a rule-based entry2005Bracket orders that precommit stop and target exits2007Overnight option limit fills, stops and trailing exits