Most traders know what a stop order is whether they use them or not. Ask your average trader about a “stop on close” and you may get some head-scratching. It’s not too difficult to understand. It’s a stop that is favored by swing traders where you don’t have a market/limit stop order placed at a price on your trading platform. It’s a stop that uses the closing price as the stop trigger. For example, if your stop price on a stock is $60.10 you are only “stopped out” once a bar/candle closes below $60.10 for a sell stop or above $60.10 for a buy stop. A word of caution is that this takes discipline because again this is not a stop order placed on a trading platform. The benefit of using such a stop allows for volatility to happen and not being stopped out of trade immediately once your stop price is traded. If you are an experienced trader, you may have had a trade stop you out and then move to your projected target immediately after. A stop on close will give the market a little “wiggle room”. This is a risk methodology that we use in Prosper Trading Academy’s Momentum Stocks room and have found it to be very beneficial.
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