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How to enter orders for trading stocks and options.

Use a stop loss or suffer the market's wrath.

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Short stocks 

Types of Order Entries & Terms

If you're going to make a mistake trading... order entry is where you'll do it!
Big hint:  read the order aloud before hitting 'enter'. This alone will save your hide.

enroll here

Order Entry...

you can't afford to make mistakes here.
When you tell your broker to buy or sell a stock at the current price, called the market price, you are giving a market order.  The price you pay (or get) is usually the same or close to the quote you see depending on how fast your broker is.

Place a stop order or limit order if you think the price is going to go against you.

A stop order tells your broker to buy or sell once the stock hits a specified target price, called the stop price.

You can use a variety of buy or sell orders to take more control over the transaction than a simple market order.

Some of the orders restrict the transaction by price, while others constrain it by time.

Market Order

The market order is the simplest and quickest way to get your order filled (or completed).

A market order instructs your broker to buy or sell the stock immediately at the prevailing price, whatever that may be.

If you are following the market, you may or may not get the last price listed. In a volatile market, you will probably get a price close to that, but there is no guarantee of any specific price.

Limit Orders

Limit orders instruct your broker to buy or sell a stock at a particular price. The purchase or sale will not happen unless you get your price.

Limit orders give you control over your entry or exit point by fixing the price, which can be helpful.

Stop Loss Orders

A stop loss order gives your broker a price trigger that protects you from a big drop in a stock.

You enter a stop loss order at a point below the current market price. If the stock falls to this price point, the stop loss order becomes a market order (see above) and sells the stock. If the stock stays level or rises, the stop loss order does nothing.

Stop loss orders are cheap insurance that protects you from a loss.  Some important points to remember: Be careful where you set your stop loss points. If a stock normally fluctuates 3-5 points, you donít want to set your stop loss too close to that range or it will sell the stock on a normal downswing. Stop loss orders take the emotion out of a sell decision by setting a floor on the downside. If you plan to be out of touch from the market, put stop loss orders in so you have some protection against an unexpected disaster. Stop loss orders donít guarantee against losses. When disaster strikes a stock, it may fall so fast the best you can hope for is to come out close to you price.

Trailing Stops

The trailing stop order is similar to the stop loss order, but you use it to protect a profit, as opposed to protect against a loss.

If you have a profit in a stock, you can use the trailing stop order to follow it up. You enter the trailing stop order as a percentage or specific dollar amount of the market price. If the market price declines by that percentage or dollar amount, the trailing stop becomes a market order and your broker sells the stock.

If the stock continues to rise, the trailing stop follows it up since it is a percentage of the market price. This protects your additional gains.

Good Till Canceled

A Good till canceled order instructs the broker to keep the order active until you cancel it. Obviously, you use this order with other order types to specify a time frame for the order.

Some brokers have limits on how long they will hold a GTC order... find out.

Bracketed Buy Order
 A buy order that is accompanied by a sell limit order above the buy order's price and a sell stop order below the buy order's price. These three component orders will all be set at a price determined by the investor at the time the order is entered. This type of order allows investors to lock in profits with an upside movement and prevent a downside loss, without having to constantly follow the position.

For example, suppose that an investor places a buy order for 100 shares of ABC at $50, along with a sell limit order at $55 and a sell stop order at $45. If the price moves up to $55 or down to $45, the position will be sold. The trader will either meet a specified gain of $5 with the sell limit or suffer a loss of $5 with the stop-loss order. However, it is important to note that having a stop-loss order at $45 doesn't mean that you are guaranteed that price. This is because once triggered, the stop loss turns into a market order and will be sold at the current market price after triggering. If the stock gaps down to $40, for example, your stop loss would be triggered and your shares would be sold for around $40.

Bracketed Sell Order
A sell order on a short sale that is accompanied (or "bracketed") by a buy stop order above the entry price of the sell order and a buy limit order below the entry price of the sell order. As the three component orders are based on set prices, this type of order protects the investor from the downside but also potentially locks in a gain without the investor constantly monitoring price.

 For example, say an investor enters a short position in ABC stock. To enter a bracketed sell order, you enter the sell order at $30 - which is the entry price - and add a buy stop order at $35 and a buy limit order at $25. Depending on the price movement the investor will either gain $5 or set his or her maximum loss at $5.

Day Order

A day order is any order that is not a good till canceled order. If your broker does not fill your order that day, you will have to re-enter it the next day.
 

All or None

The all or none order states you want the entire order filled or none of the order filled. You would use this type of order for thinly traded stocks.

For more on order entry, see your broker's site and/or visit www.investopedia.com.

Use Stop-loss orders or risk the market's wrath.
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