Stop Orders Explained
By Ultimate Trading
How Stop Orders Can Save You Time And Money
Stop orders are not complicated. When we use the word "stop," were referring
to stop orders. This is an order that directs your broker to sell a position
you hold long if it drops to a specified price. If you've sold short,
you can place a stop-loss buy-to-cover order to get out of the position
if it rises to a specified price. Once the stop orders have been triggered,
it's immediately executed as a market order.
Here's an example. Let's say you buy a stock at $50 a share. You have
reason to think it will rise, but you also realize it's a risky trade.
You know that if the stock drops below $48.50, it means there's with the
trade and you'll want out. How can you be sure to get out if the stock
drops below $48.50? You have to set your stop orders.
After buying the stock, you place your stop orders at $48.40. This tells
the broker that any execution in the market for $48.40 or less is an automatic
trigger to sell your shares immediately in the form of a market order
they'll be sold at the current bid, whatever that is.
These stop orders will happen automatically, which means you won't have
to watch the stock closely. It also means you won't be tempted to hold
on longer, hoping that the stock will go back up.
In general, there are two types of stop orders: stop-toss and stop-limit.
Stop-loss order are stop orders to sell a position if it drops to a specified
price or to buy to cover a position you sold short if it rises to a specified
price. Once the stop orders are triggered, the stop orders are executed
immediately at the market price (it becomes a market order.)
A stop-limit order are stop orders to sell a position at a specific price
and no lower than that price if it drops to that price, or to buy to cover
a stock sold short at a specific price and no higher than that price if
it rises to that price. Once the stop orders are triggered, the stop orders
are executed only if it can be executed at the limit price or better (it
becomes a limit order.)
Let's say a stock does drop. It hits $48.40, and your stop orders are
triggered. Your stop orders become a market order to sell. This means
that it will execute immediately at the current bid price. The same principles
apply to stops on short positions. If you sell a stock short at $13, expecting
it to go down, you'll place a stop buy-to-cover order at, say, $13.75.
If it suddenly rises sharply, you're protected - and you can always re-short
the stock at a higher price when you believe it's reached its peak.
About To Learn Secrets Most Traders Will Never Know About Profitable System Trading..."
Inside you’ll learn...
to design a winning system from scratch and exactly what
to do to supercharge your current stock trading system!
one ingredient you literally "Drop" into your
stock trading system that can triple your profit!
to use “secret” money management techniques
to minimize your risk.
tools the professionals use and how you can get huge discounts
(charting software, data, etc).
you'll also get a FREE copy of David Jenyns’ complete
Ultimate Trading Systems Course…
Just enter your name & email - then click the “Click
Here For Free Instant Download!” button. (All information
kept 100% confidential). The download details will be
emailed to you immediately.
take your privacy very seriously. My
personal privacy guarantee to you. I respect your privacy
and will never share your email address with anyone. You can
easily unsubscribe at any time. View our Privacy
Policy - David Jenyns Founder of www.ultimate-trading-systems.com
copyright 2005 Stop Orders