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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about the author:

Mike Shorr

Since 1994, Michael has been an on-the-floor market maker, Vice-President of Interest Rate Derivatives for Knight Financial Products and Director of Education and Options Instructor at Trading Advantage. He makes the oftentimes complex world of options and trading accessible to the novice and advanced trader alike. Michael has a Bachelor of Science degree in Statistics and Finance from the University of Illinois Champaign-Urbana. He presently is Director, Trader Education at ProsperTradingAcademy.

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