What are the four essential order types that most traders should use?
Stop orders, limit orders, bracket orders, and market orders.
For beginners, what type of order should be used exclusively for entering trades?
Stop orders.
What happens to a stop order as soon as its price is touched by the market?
It becomes a market order and is filled at the next available opportunity.
A _____ is a combination of a protective stop order and a profit-taking limit order.
bracket order
When is it appropriate to use a market order?
When the market is moving too fast and you need to get in or get out immediately.
Why should most traders almost always enter with stop orders?
Because for the order to be filled, the market must be going in the trader’s direction.
What is the term for the difference between the price where a stop order is placed and the actual fill price, especially in a fast or thin market?
Slippage.
According to Al Brooks, what is the single most important order a trader will ever use?
The protective stop.
What psychological flaw in beginners does a protective stop primarily protect against?
Denial, and the tendency to hope a losing trade will reverse, leading to larger losses.
What is a ‘Black Swan event’ in trading?
An unanticipated, low-probability, extreme market event that current systems are not designed to prevent.
Do protective stops always offer the protection you hope for, especially during huge market gaps?
No, during a large gap, the fill can occur at a much worse price, offering little to no protection.
What is a more effective way for institutions and professional traders to protect against catastrophic losses from events like earnings reports?
Buying puts.
How does the filling of a limit order typically differ from a stop order?
A limit order usually needs the price to go through it to get filled, while a stop order is triggered when the price is simply touched.
An experienced trader might place a limit order to sell at a prior high, betting that a bull _____ will fail.
breakout
What is another name for a bracket order, often standing for ‘Order Cancels Order’ or ‘One Cancels Other’?
An OCO order.
In a bracket order, what happens to the profit-taking limit order if the protective stop is hit?
The profit-taking limit order is automatically and immediately canceled.
When a trader uses multiple limit orders to exit a position at different price levels, what is this strategy called?
Scaling out.
Buy market orders are filled at the _____, while sell market orders are filled at the _____.
offer (or ask); bid
What legal clause in a broker contract means that the broker is not responsible for any problems with filling orders, making any issues the trader’s fault?
The ‘not held’ clause.
The bar on which a trade setup is identified is called the _____, and the bar on which the entry order is filled is called the _____.
signal bar; entry bar
As a general rule, traders should aim for a reward that is at least how many times their initial risk?
Two times their initial risk.
Entering a trade with a stop order is effectively betting on a successful _____ of the prior bar.
breakout
In what type of market condition are stop orders likely to perform poorly?
In a tight trading range.
A tight trading range is described as a _____ order market.
limit
