1.3 Order Types

Master the 6 order types you'll actually use. This is one of the most practically useful chapters in the whole curriculum.

Layer 1: Market Plumbing — Chapter 3 Goal: Master the 6 order types you'll actually use. This is one of the most practically useful chapters in the whole curriculum.

Why This Matters

Every trade you place uses an order type. Picking the wrong one costs you money on entry, exit, or both. Most beginner losses come from using the wrong order type in the wrong situation.

Market Order

"Buy/sell right now at whatever price."

You're saying: I don't care about price, just fill me immediately.

Pros

Instant fill
Guaranteed execution

Cons

You pay the spread
On illiquid stocks, you can get terrible fills (slippage)

When to Use

Liquid stocks where you need to be in/out NOW (rare for swing traders)

When NOT to Use

Pre-market or after-hours
Illiquid stocks
Fast-moving stocks (news events)
Anything with a wide spread

Real Horror Story

Someone places a market buy on a thin stock pre-market.

Best ask is $50.05
Next ask up is $52
Next is $55
Their 1000-share order eats through the entire book
They get filled at an average of $53

Stock is "really" trading at $50. They just lost $3,000 from one click.

Default Rule

Don't use market orders unless you have a specific reason.

Limit Order

"Buy/sell only at this price or better."

You set a price. The order executes only if the market reaches your price.

Buy limit at $199 = buy only if price drops to $199 or lower
Sell limit at $205 = sell only if price rises to $205 or higher

Pros

You control the price
You don't pay the spread (sometimes you ARE the spread)
Works in pre/after-hours

Cons

Might not fill at all if price moves away
Partial fills possible

This Should Be Your Default

~90% of your orders should be limits.

Marketable Limit (Pro Tip)

A limit order at or beyond the current ask (for buys) or bid (for sells). Fills immediately like a market order, but with a price ceiling.

Best of both worlds: instant fill + protection from runaway slippage.

Example: Ask is $200.02, you place a buy limit at $200.05.

Fills immediately at $200.02 (or better)
If the market suddenly jumps to $201, you don't get filled higher than $200.05
Safety net against fast moves

Stop Order (Stop-Loss)

"When price hits X, trigger a market order."

A stop is dormant until your trigger price is hit. Then it converts to a market order.

Sell stop at $190 (you're long at $200) = if price drops to $190, sell at market
Buy stop at $210 (you're short, or breakout entry) = if price rises to $210, buy at market

This is Your Stop-Loss

The order that gets you out of a losing trade automatically. Non-negotiable for every position.

Critical Gotcha

Once triggered, it becomes a market order. In fast-moving markets or after gaps, you can fill far worse than your stop price.

Example slippage scenario:

You have a sell stop at $190
Stock closes at $192
Overnight, bad news breaks
Stock opens at $175
Your stop triggers, but fills at $175 — not $190

This is slippage on stops, and it's why holding through earnings is dangerous.

Stop-Limit Order

"When price hits X, place a limit order at Y."

Combines stop trigger + limit price. Protects against the slippage problem above.

Sell stop-limit: stop $190, limit $188 = if price drops to $190, place a sell limit at $188

Pros

No bad fills from slippage
Predictable execution price

Cons

Might not fill at all if price gaps through your limit
In the example above, if stock crashes from $192 to $175:
- Your stop triggers at $190
- Places a sell limit at $188
- But no one's buying at $188
- You're stuck holding all the way down

The Trade-Off

Stop Order	Stop-Limit Order
Guaranteed exit	Good price
Possibly bad price	Possibly no exit

For swing trading, regular stop orders are usually better — you want to be OUT of a bad trade, not stuck in one.

Trailing Stop

"A stop that moves with the price."

You set it as a distance (dollars or percent) from current price. As price rises, the stop ratchets up. It never moves down.

Example

Stock at $200, trailing stop at $5.

Stock rises to $210 → stop moves to $205
Stock rises to $215 → stop moves to $210
Stock falls to $209 → stop stays at $210, triggers, you exit

Use Case

Letting winners run while protecting profits. Especially useful when you can't watch the market.

Caveat

Trailing stops can get you whipped out of normal pullbacks. Set them based on ATR (volatility), not arbitrary numbers — typically 2-3× ATR.

(We'll cover ATR in Layer 3.)

Bracket Order (OCO — One Cancels Other)

"Place 3 orders simultaneously: entry + stop + target. When one fills, others cancel."

This is how pros enter positions. You define the entire trade upfront.

Example

ENTRY:  Buy 50 shares at $200 (limit)
STOP:   Sell 50 shares at $190 (stop)    → risk: $500
TARGET: Sell 50 shares at $220 (limit)   → reward: $1,000

When entry fills, the stop and target both go live. When stop OR target hits, the other auto-cancels.

Why This Is Powerful

Forces you to define risk/reward BEFORE entering (huge psychological benefit)
Removes "should I sell now?" decisions in the moment
Works while you sleep / are at work — perfect for swing trading

Broker Support

Most brokers support this: IBKR, Schwab/TOS, Fidelity, Tradier, Alpaca, and others. Use it.

GTC vs. Day Orders

Day Order

Expires at end of trading day if not filled. Default for most brokers.

GTC (Good Till Canceled)

Stays active until you cancel it (or 60-90 days, broker-dependent).

For Swing Trading

Use GTC. You're often setting orders that might not trigger for days. Day orders are for active intraday trading.

Hidden / Iceberg Orders (FYI Only)

Used by institutions to disguise large orders.

A 100,000-share order is shown as 1,000 shares at a time, replenishing as filled. Keeps the market from front-running their size.

You don't have access to these as retail, but knowing they exist explains why Level 2 isn't the full picture.

Pre-Market and After-Hours Rules

Only limit orders work outside regular hours (most brokers)
Spreads are 5-10× wider
Volume is 5-10% of normal
News-driven moves happen here (earnings, M&A)
Avoid trading these sessions until you really know what you're doing

Practical Cheat Sheet

The real-world cheat sheet for swing trading:

Situation	Order Type
Entering a position	Limit (or marketable limit)
Stop loss	Stop (regular, not stop-limit)
Profit target	Limit
All three at once	Bracket
Letting a winner run	Trailing stop (ATR-based)
Time horizon	GTC
Pre/after-hours	Limit only, and probably don't

Common Beginner Mistakes

Using market orders because "I want in NOW" → bleed money on every fill
No stop loss → one bad trade kills the account
Mental stops instead of hard stops → "I'll just sell when it hits $190" → it hits $190, you hesitate, it goes to $180
Setting stops at obvious levels → $200 round number, $189.99 below recent low → you get hunted (more on stop hunting in Layer 4)
Moving stops further away when losing → revenge with the market, always loses
Cancelling targets to "let it run" → and then watching it round-trip back through entry

The Single Most Important Habit

Every trade has 3 prices defined BEFORE you enter:

Entry
Stop loss
Target

If you can't write these three numbers down with a clear reason for each, you don't have a trade — you have a gamble.

Bracket orders enforce this discipline mechanically. Use them.

Quick Self-Check

Before moving to 1.4, you should be able to answer:

What's the difference between a market order and a limit order?
What's a marketable limit order, and why is it useful?
What's the difference between a stop and a stop-limit?
When does slippage happen on a stop order?
How does a trailing stop work?
What is a bracket order and why is it powerful?
What's the difference between GTC and Day orders?
What are the 3 prices you should define before every trade?

Previous: 1.2 The Order Book and Price Discovery Next: 1.4 Market Participants (coming next session)