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What is a Stop Order?
Published February 20, 2009 |
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(a) A Sell Stop Order is used by investors and traders long a stock to protect an existing profit or avoid further losses if the stock price drops. A stop order to sell must be placed below the current market price.
(b) A Buy Stop Order is used by investors and traders short a stock to protect a profit or limit a loss if the stock price increases. A stop order to buy must be entered at a price above the current market price.
Stop orders may be placed as "Day" orders which are good for the day only, or as "GTC" orders, which are good until cancelled.
Learn about using "intelligent" stops so you can let your winners run and cut your losses, the secret to being a freat trader. See SmartStops.
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Comments
Stop Orders
There are additional uses for Stop Orders besides what is referenced above. For example: A Buy Stop Order can be set above the current market price in anticipation of a move higher, out of a recognized pattern for example. Once the breakout occurs and the Buy Stop Order is triggered, the order gets sent in as a Market Order to buy shares and you now have a new long position.
Read more details here:
A Sell Stop Order can be used the same was, but to enter a new Short Position on an anticipated decline in a stock price.
Most people overlook these uses but they can be valuable at times.
short and stop orders
Here's some examples of limit and stop orders:
If I bought AAPL at $120 and I wanted to sell it when it hit $140, I would place a limit sell order at $140 (you can place this as a DAY order or a Good-til-Cancelled).
If I bought IBM at $100 and I wanted to make sure I didn't lose more than $5 on the trade I would place a STOP order to sell the stock if it fell down to $95.
If I was a technical analysis trader and I saw GE in a trading range of $10-$12 and I only wanted to buy it if there was an upside breakout, then I would place a buy STOP order at $12.10.
If I thought Google is way overpriced at $400 and I wanted to make money on Google's price decline, I could place a market order to SELL SHORT GOOG, in which case the order would get filled immediately at the latest bid price. When GOOG fell down to $325 then I would COVER my short on GOOG and buy it back.
If GOOG is in a trading range today of $340-350 and it is currently trading at 345 then I could try to get a few extra buck and place a limit short order at $347. That way, the next time the price rises from $345 to $347+ my order would normally get filled somewhere at or near 347. Then in a few minutes/hours/days when GOOG is back down to near $340 I would place a limit cover at $340 and keep my fingers crossed the stock went down to or below 340.
Shorting video tutorial
To see how to actually short a stock, please see this video tutorial.
To see how to place limit and stop orders, please see this video tutorial.
short and stop orders
can you please help to explain in deatil how to short, cover and place stop, limit orders by giving example?
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