Stop Order VS Limit Order - What’s the Difference?

Let's talk about the difference between a stop order vs. a limit order. What is a limit order? What is a stop order? When do you use what order?

This is extremely important, because as you'll see in just a moment, when you try to enter or exit a trade and you are using the wrong order, you will lose money.

Stop order vs limit order – which to use?

Stop order vs limit order: You need to know which to use for your entries and for your exit.

Okay. So let's say we specify a level of 100 and now let's say that we are betting on a market that is going up.

This means that we want to buy a stock. If we want to buy a stock, as soon as it crosses above 100, we would specify that we buy the stock, which could be for example, Apple at 100 stop.

This means as soon as Apple moves above 100, buy it.

On the other hand, if we want to buy Apple, and pay a maximum price of 100, this is when we say,

okay, buy AAPL. Apple. At 100 limit.

What is the main difference between a stop and limit order?

A stop order is being executed as soon as prices move above the price, if you're trying to buy it, right?

As soon as we move above 100, you're buying it. So, if Apple opens the next day at 110, you're buying Apple at 110.

On the other hand, if you specify a limit order of 100, meaning that you only want to pay a maximum of 100, and the next day Apple opens at 110, you would not get filled because you specified that you only want to buy if you are below 100.

Is this making sense thus far?

Now let me explain the same thing for the downside, if you’re trying to sell something.

Let’s put in a level of $100, but now, the major difference is that instead of buying, we say we want to sell a stock. Because when you sell a stock, it’s the exact opposite.

Again, when you’re buying and you specify $100 stop, you’re buying when it moves above.

When you’re selling and you’re betting on a falling market, if you say sell AAPL at 100 stop, it means that you're selling it as soon as it goes below $100.

Now on the other hand, if you're specifying a sell order to sell AAPL at 100 limit, it means that this is being executed if prices are above 100. So, might screw a little bit with your brain.

The good news is you can print it out. You can put it on a post-it and you can do it on your screen.

Let me give you the short cut of when I use what order.

The way I personally trade.

For my entry order, I always use a stop order.

And this is what we talked about – because I want to make sure in a rising market, that we move above the previous day's high and only when we do this, I want the order to be executed.

For my entry order, I am using a stop order.

For my stop loss, and the name kind of says it already, I'm using a stop order.

Because I want to make sure that if the trade is going against me, as soon as it hits the predefined level, then I'm automatically exiting, right?

So this is where if I bet on a rising market, and the stock goes against me, as soon as it hits my predefined level, I want to get out of this.

Now, for my profit target, I am using a limit order because I want to make sure that I'm taking profits as soon as we are crossing above a certain level. This is the shortcut.

So for your entry order, I recommend using a stop order. For your stop loss, use a stop order. And for your profit target, use a limit order.

Is this helpful?

And again, this is not supposed to be a comprehensive explanation because as you can see, it can get tricky. I want you to remember this shortcut.

What about a market order?

Now I want to touch on one more order that you might have if you are not specifying whether you're using stop or limit.

If you are not specifying anything, by default, you are using a so-called market order.

And when you use a market order, this is writing a blank check to your broker. It means buy or sell at whatever price. I don't care about the price.

When would you ever use a market order?

Well, for me personally, this is the so-called oh sh!# order.

It means when you realized that you made a mistake... Let's say you wanted to buy 100 shares of Apple, but accidentally, you bought 1,000 shares of Apple.

In this moment, sell. Sell at whatever price, because trust me, it usually only gets worse.

Or when you realize that you used the wrong order, or that you’re in Lululemon, and then you realize: I shouldn't be in there and you just see it's in my account, liquidate it. Okay?

When you’ve made a mistake, liquidate.

Write this down. It's good one. When you’ve made a mistake, liquidate.

That's when you use a market order. It's the “oops” order. Other than this, I would personally never use it because it’s like writing a blank check to your broker.

If you tell your broker to buy Apple, and you don’t specify a price and an order type, it means buy Apple at whatever price is right now available.

And I like to have a controlled entry and exit in the market so that I know exactly at what price I'm getting in and out because after all, as you know, I am German, and I like it to be precise.

I also like the market to come to me and I don't like to chase the market.

This is why I'm drawing these lines in the sand and then I'm using stop or limit order so that my order is getting executed once the stock crosses this line in the sand.

If you know anybody who might find this blog helpful, please, feel free to share it.

The part about using a stop and a limit order is extremely important. When you use the wrong order, you may lose money. Almost always you lose money because you’re entering when you don't want to enter.

lk about the difference between a stop order vs. a limit order. What is a limit order? What is a stop order? When do you use what order?

This is extremely important, because as you'll see in just a moment, when you try to enter or exit a trade and you are using the wrong order, you will lose money.

Stop order vs limit order – which to use?

stop order vs limit order

You need to know which to use for your entries and for your exit.

Okay. So let's say we specify a level of 100 and now let's say that we are betting on a market that is going up.

This means that we want to buy a stock. If we want to buy a stock, as soon as it crosses above 100, we would specify that we buy the stock, which could be for example, Apple at 100 stop.

This means as soon as Apple moves above 100, buy it.

On the other hand, if we want to buy Apple, and pay a maximum price of 100, this is when we say,

okay, buy AAPL. Apple. At 100 limit.

What is the main difference between a stop and limit order?

A stop order is being executed as soon as prices move above the price, if you're trying to buy it, right?

As soon as we move above 100, you're buying it. So, if Apple opens the next day at 110, you're buying Apple at 110.

On the other hand, if you specify a limit order of 100, meaning that you only want to pay a maximum of 100, and the next day Apple opens at 110, you would not get filled because you specified that you only want to buy if you are below 100.

Is this making sense thus far?

Now let me explain the same thing for the downside, if you’re trying to sell something.

Let’s put in a level of $100, but now, the major difference is that instead of buying, we say we want to sell a stock. Because when you sell a stock, it’s the exact opposite.

Again, when you’re buying and you specify $100 stop, you’re buying when it moves above.

When you’re selling and you’re betting on a falling market, if you say sell AAPL at 100 stop, it means that you're selling it as soon as it goes below $100.

Now on the other hand, if you're specifying a sell order to sell AAPL at 100 limit, it means that this is being executed if prices are above 100. So, might screw a little bit with your brain.

The good news is you can print it out. You can put it on a post-it and you can do it on your screen.

Let me give you the shortcut of when I use a stop order vs limit order.

The way I personally trade.

For my entry order, I always use a stop order.

And this is what we talked about – because I want to make sure in a rising market, that we move above the previous day's high and only when we do this, I want the order to be executed.

For my entry order, I am using a stop order.

For my stop loss, and the name kind of says it already, I'm using a stop order.

Because I want to make sure that if the trade is going against me, as soon as it hits the predefined level, then I'm automatically exiting, right?

So this is where if I bet on a rising market, and the stock goes against me, as soon as it hits my predefined level, I want to get out of this.

Now, for my profit target, I am using a limit order because I want to make sure that I'm taking profits as soon as we are crossing above a certain level. This is the shortcut.

So for your entry order, I recommend using a stop order. For your stop loss, use a stop order. And for your profit target, use a limit order.

Is this helpful?

And again, this is not supposed to be a comprehensive explanation because as you can see, it can get tricky. I want you to remember this shortcut.

If you're interested in learning exactly what I trade, when I enter and when I exit, visit: My Trading Routine for a free, 35-minute video - no opt-in needed.

What about a market order?

Now I want to touch on one more order that you might have if you are not specifying whether you're using stop or limit.

If you are not specifying anything, by default, you are using a so-called market order.

And when you use a market order, this is writing a blank check to your broker. It means buy or sell at whatever price. I don't care about the price.

When would you ever use a market order?

Well, for me personally, this is the so-called oh sh!# order.

It means when you realized that you made a mistake... Let's say you wanted to buy 100 shares of Apple, but accidentally, you bought 1,000 shares of Apple.

In this moment, sell. Sell at whatever price, because trust me, it usually only gets worse.

Or when you realize that you used the wrong order, or that you’re in Lululemon, and then you realize: I shouldn't be in there and you just see it's in my account, liquidate it. Okay?

When you’ve made a mistake, liquidate.

Write this down. It's good one. When you’ve made a mistake, liquidate.

That's when you use a market order. It's the “oops” order. Other than this, I would personally never use it because it’s like writing a blank check to your broker.

If you tell your broker to buy Apple, and you don’t specify a price and an order type, it means buy Apple at whatever price is right now available.

And I like to have a controlled entry and exit in the market so that I know exactly at what price I'm getting in and out because after all, as you know, I am German, and I like it to be precise.

I also like the market to come to me and I don't like to chase the market.

This is why I'm drawing these lines in the sand and then I'm using stop or limit order so that my order is getting executed once the stock crosses this line in the sand.

If you know anybody who might find this blog helpful, please, feel free to share it.

The part about using a stop and a limit order is extremely important. When you use the wrong order, you may lose money. Almost always you lose money because you’re entering when you don't want to enter.

Read Next: Action is the Real Measure of Intelligence

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