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Trading without Stop Limits!

Updated: Dec 25, 2022

What if you traded so small you didn't need a stop limit? Good Kids Trading (GKT) advocates trading small and trading often. With many of my risk defined trades I don't have a stop limit order because the amount I have at risk is negligible compared to the amount I would need to risk for a swing trade or day trade using stock shares. I can setup 10 small option trades that equal the amount I risk when I setup for 1 trade using shares (this is of course depending on your risk unit, but still applicable to some degree no matter how small your account.) Putting on smaller trades also allows me to have more diversification and I'm able to manage my accounts delta and theta more easily.

For newer traders, you may not be familiar with stop limit orders, here is a quick explanation: when traders setup a day trade or a swing trade it's best practice to setup an One-Cancels-the-Other Order (OCO) where you have 2 orders: a profit target and a stop limit order to lock in your win or set a maximum loss for your trade. By setting a stop loss you can trade a larger quantity of stock because you sell the shares at market price if the stock hits a worst case level. But there are negatives with stop loss orders, if the stock drops quickly to your stop loss level, the order is executed at market price, so if your stop limit was $95 your order might execute at 94.85, this is referred to as slippage and while it might not seem like a lot when you are trading larger quantity of shares, pennies do matter and your loss is often more than your set amount. Your orders are also visible to the market, and many people set stop limits at similar places on the chart, or round numbers so it's common to get stopped out, only for the stock to bounce right after your order gets filled and you have taken your max loss.

If you are a stock trader you are well aware of the scenario where your trade gets stopped out only for the stock to bounce and hit the target without you (or it keeps dropping, but let's not think about that). When you trade an option with no stop limit if the underlying recovers or bounces you can still profit if you have bought enough time! If the stock never bounces, you can still close your option trade while there is still some premium left, so it's not always an absolute zero or max loss.

Trading option contracts gives you built in leverage (remember 1 call or 1 put controls 100 shares). This can be a positive or a negative if you aren't sizing your options trade correctly this can blow up an account, but if you use a good strategy and proper setup this leverage is powerful in the risk reward profile of a trade.

Trading small and trading often is a different style of trading than many groups and communities do not discuss. If you setup defined risk trades with appropriate risk reward, you can afford to trade without stop limits. You should still manage losers before they get unmanageable, but you can afford to take some full losses when you are risking less than you win on a consistent basis.

Trading without stop limits might sound like a dangerous idea to seasoned traders, but GKT's strategies make trading without a stops possible and profitable! Trading in a community of likeminded people is far more fun, educational, and profitable! Join our discord today:

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