Every strategy, manual or automated, ends in orders. Knowing exactly what each order type does when price reaches it, and what happens when price jumps past it, matters more than any indicator setting.
The descriptions below are general. Each broker and platform documents its own handling, including whether a stop is held on the exchange or on a server, so read that documentation for the account you use.
04.1Stop loss vs stop limit
A stop market order sits away from the market and becomes a market order when price trades at the stop. It will normally fill, but in a fast market it can fill at a worse price than the stop. That difference is slippage.
A stop limit order becomes a limit order when the stop is touched. It will not fill worse than its limit, but if price moves through the limit it may not fill at all, and the position stays open. One trades price certainty for fill certainty, the other the reverse.
04.2What a stop-loss is
A stop-loss is the exit you decide before you enter, placed where the reason for the trade would be wrong. It is usually a stop market order. It limits a loss only to the extent the order fills near its price; gaps and fast markets can carry the fill past it.
04.3Trailing stops
A trailing stop follows price by a set distance as the trade moves in your favor and never moves back. The distance can be a fixed number of ticks, a percentage, or a volatility measure such as a multiple of ATR. Too tight and normal noise closes the trade; too wide and it gives back more before it exits.
04.4OCO and bracket orders
OCO means one cancels other: two orders are linked so that when one fills, the platform cancels the other. A bracket order is an entry with an OCO pair attached, a protective stop on one side and a profit target on the other. In NinjaTrader, ATM strategy templates build brackets like this automatically when an entry fills.
entry : buy 1 @ market
stop : sell 1 @ entry - 12 ticks ┐ OCO
target : sell 1 @ entry + 24 ticks ┘ one fills, other cancelsWhere it usually goes wrong
- Using a stop limit as a protective stop and finding the position still open after a fast move.
- Assuming a stop guarantees the exit price.
- Leaving orphan orders working after the position has closed because the exits were not linked.