| When you trade stocks, you can enter and exit a | | | | paying more than you expected. For instance, in the |
| trade in a number of ways. In a hurry, use a market | | | | above example if the stock gaps up to 10.55 at the |
| order. Have some time use either a limit order or stop | | | | open on news, instead of paying around 9.26 you will |
| order. Once you are in the trade you can use a | | | | be in at 10.55. To eliminate this possibility one would |
| bracket order to manage it. | | | | enter a stop limit order. |
| Market Order | | | | Keeping with the above example, for a stop limit order |
| A market order gets you into a stock very quickly but | | | | the buy on stop order is set at 9.26 but you also add a |
| the price is determined at the moment of the | | | | limit order of say 9.36. This means that when your |
| transaction. While you generally know approximately | | | | stop gets hit you are willing to buy the stock but only if |
| what the price will be you are not sure what it will be. | | | | you can get it for 9.36 or better. By placing the stop |
| As an example, for a stock with a bid of 7.00 and an | | | | limit order you are ensuring that you will not over pay |
| asked of 7.03 if you place a market order you will likely | | | | for the stock. Thus, if the stock gaps up to 10.55 your |
| get filled at 7.03. If seconds before you place your | | | | order would not be filled until the stock price came |
| order the asked price changes, you will end up | | | | down to 9.36. |
| purchasing the stock at the new asked price which | | | | Bracket Orders |
| could be higher or lower than 7.03. | | | | After you are into a stock you now need to get out in |
| Limit Order | | | | order to close the trade. One way to do this is with a |
| In the above example if you placed a limit order at 7.03 | | | | bracket order. |
| and the asked price changed, you would only pick up | | | | A bracket order allows you to place both a stop loss |
| the stock if the asked price was lower than 7.03. If the | | | | order and a limit order on the stock at the same time. |
| asked price was higher your order would sit there | | | | The first one that gets hit automatically results in the |
| waiting for someone to lower their asked price to 7.03. | | | | second order being canceled. |
| Buy on Stop | | | | As an example pretend you just bought an uptrending |
| A buy stop order is used when you want to purchase | | | | stock for 21.57. You want to get out at 24.00 but you |
| the stock but only if it advances to your price. For | | | | feel that if it goes below 20.49 you want to cut your |
| many stock traders this is a new concept. It can be | | | | losses and get out. You would enter your bracket |
| difficult to understand why someone would want to | | | | order as follows - place your limit order at 24.00 and |
| pay more for a stock than it is currently trading for. | | | | your stop loss order at 20.49. |
| The answer is simple. In most cases, the trader is | | | | Under normal circumstances, if the stock advances to |
| waiting for a more definitive signal which will hint that | | | | 24.00 it will be sold at 24.00. However, if it declines you |
| the stock is beginning to continue a movement. | | | | will be stopped out at 20.49. Either way you know that |
| As an example consider a stock that has been rising | | | | your downside is protected and you have a profit |
| and is now consolidating in a price range between 8.00 | | | | target working for you at all times. As the stock |
| and 9.15. If you still feel that the stock can go higher | | | | moves up you can continually raise your sell stop to |
| then you could place a buy stop just above 9.15 at for | | | | lock in profits by following your trading plan. As always |
| instance 9.26. If the stock moves up to 9.26 or gaps | | | | quick, large, unexpected moves may produce a result |
| up above 9.26 then your broker will enter your stop | | | | you were not expecting. |
| order as a market order and you will get filled at the | | | | In summary, you can use limit, market and buy stop limit |
| current price. | | | | orders to get you into a stock and then employ a |
| Buy Stop Limit Order | | | | bracket order to manage your trade. |
| One problem with a stop order is that you may end up | | | | |