Stop Loss OrderStop loss order. The use of sell stop orders explained in simple terms. Stop market orders and trailing stop orders. When to use a buy stop order.
Stop Orders ExplainedStop Market OrderThe important thing to know is that stop loss orders convert into market orders as soon as the stop price is touched—no matter how briefly. Because of this, the order may fill at a different price than the stop price. You will sometimes get a better price. This is called price improvement. In my experience, it is the exception rather than the rule. The difficulty of using stock market stop orders is in deciding at what price levels to set them.You have to allow for the “normal” price fluctuation in the stock you are trading. Some stocks are much more volatile than others so there’s no hard and fast rule to follow. What I do, is examine the price history of the stock I’m considering. I do this by pulling up a 3 month chart. Any chart that gives the highest and lowest price that the shares sold for during each trading session will do. This tells me how far below my buy price I will need to set my sell stop order. If the stop market order is 2% below the buy price and the stock normally fluctuates 5%, my stop is too likely to be triggered. This is how people lose money using sell stop orders. If you consistently set stops that are too tight for the shares you are trading, you will be constantly taking small losses. These 2%, 5%, or 10% losses quickly become prohibitively expensive. This is why a 10% stop will often be more protective than a 2% stop. Yes, you risk losing 10% of your investment if something goes drastically wrong. But by setting a 10% sell stop order on a stock that only normally fluctuates 5 or 6% you dramatically reduce the likelihood of the stop being triggered. The following are other stop loss order methods:
Trailing stop order and stop limit orders explained. What is a trailing stop limit order. The use of trading stop orders. Stock market stop orders.
What is a stop limit order? Trailing stop and limit orders. Stop loss and limit orders defined.
A buy stop order is a type of stop loss that is used in momentum stock trading. Trading stop order. The use of buy stops. Market orders.
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