Buy/Sell Orders

This is second most popular method for entry and exits. Using market orders is commonly used by intraday traders who are attempting to enter and exit quickly in the market for quick gains or cut losses quick.

Advantages

• Market Orders are used to immediately enter and exit a position

• Market Orders almost guarantees that your order will fill (very rare to not fill - there would have to be zero people buying or selling at that moment)

• Great for getting quick entries and exits on liquid/tight spreads

Disadvantages

• If there is a wide spread/slippage, your order could place at the worst possible price

• When I trade higher slippage names, it is not uncommon to see you are down instantly

• Highly dependent on working orders. Depending on the current buy or sell orders currently working, your order will be filled

• On an option I was up $300 according to TOS, the market order could only place a fill at $180

What are Stops?

• Stops help us to define our risk; smart traders use some form of stop (stop, stop limit, or trailstop)

• When you create a Stop, you are not selling at that price, you are creating a price point where a Market Order will be Activated. The price will be determined by the orders available at Market price.

• Setting a stop loss allows us to go about our day to not worry about watching price action

• Once a stock's price action goes in our expected direction, we can move our stop loss to breakeven to prevent us from losing money if a stock should reverse

• As price continues in our direction, we can move our stop below pullbacks or other consolidation areas to lock in profits should price reverse

Advantages

• Offers a set it and forget method approach

• Activation is triggered when your price is hit; great for setting your exits and defining your risk

• Market Orders almost guarantees that your order will fill (very rare to not fill - there would have to be zero people buying or selling at that moment)

• Great for getting quick entries and exits on liquid/tight spreads

Disadvantages

• Same as Market Order

What is a Stop Limit?

• A Stop Limit is similar to a Stop with the exception that you can set a limit on the price that you are willing to sell your position

• For a Stop Limit we will set two different amounts: Activation Price and the Price we are willing to sell as low as

• If we set a Stop Limit with an activation of $100 and a limit of $98, once price drops to $100, it will attempt to fill your order between $100 and $98.

• If you have 100's of shares, they could fill all at the same price or at various prices depending on working orders

Advantages

• Great for predetermining your max loss on a trade

• Controlled loss versus setting a Market Order which could have our risk increased due to slippage or price action

• This can help us against whipsaws that has a price dip quickly and recover. While we will still be shaken out of our position, it will close within our activation price and limit.

Disadvantages

• If price drops quickly your order may not find someone to buy your position leaving you in a falling position and no early exit

• If you have EXT, orders during pre and post market are subject to availability and are not as liquid

• Securities with a high slippage can often skip over your limit in a quick drop missing your limit and leaving you in your position

Market Open Cost

• Same as Market, but the order will execute at market open

• This can be beneficial if you are set on a direction and resistance/support level

• This can work against you if at opening there is a whipsaw that triggers your stop loss only to see it reverse later

• This can be used with investors and traders who want to make decisions based on the daily chart

Last Price of the Day Cost

• Your price will fill at the closing price of the day

• This is beneficial for people who are trading on daily candles or like price action at the end of day to enter a position

• Some people may use this feature prior to earnings reports to lock in closing price in hopes of seeing a big move from the report

Disadvantages

• Market Open can be one of the most volatile times of the day and you could enter at a higher price than expected

Limits allow us to set a price that we are willing to purchase or sell a security. This can done at anytime using Day or GTC with or without extended hours for you to target specific entry and exits. Unless your order is able to fill at the specified price, it will sit in waiting. This is one of the most popular or used order entries and exits.

Limit Entries

Advantages

• Enables you to target a key price to enter a position

• Can be set for the Day or GTC to keep your target open

• Will open on your price or better

Disadvantages

• Depending on liquidity, some of your order may not fill if it cannot get the specified price or better

Limit Exits - Similar to a Stop Limit, but the Activation and Limit are the same price

Advantages

• • • Set it an forget it

    • Enables you to sell your position as soon as it hits your target to assure profits

    • Takes out the guesswork of exiting or holding your position

Disadvantages

• May limit future rise in position if sold at limit; you can always set multiple limits to sell at various points

• Depending on liquidity, some of your order may not fill if it cannot get the specified price or better

OCO - One Cancels the Other is a great way to determine your risk and your reward at one time. The order will trigger based on whichever order hits first (your stop or your limit). This is a great tool for busy people who are not able to watch their positions but want to limit their losses and take profits while away from the computer. This is also a great tool for those who manage multiple positions at once.

Advantages

• Great way to be robotic about your exits and at profit taking points

Disadvantages

• May miss out on additional profits if price surges past your target

Similar to other stops, Trailstops offer the ability to set it and forget it, but offers a flexible exit based

• A sell trailing stop order sets the stop price at a fixed amount below the new market price with an attached "trailing" amount.

• As the market price rises, the stop price rises by the trail amount, but if the stock price falls, the stop loss price doesn't change, and a market order is submitted when the stop price is hit.

• Example - Price $50, you set a $10 Trailstop GTC

  • Scenario 1 - price drops to $40, your trailstop is activated and a market order will be opened

  • Scenario 2 - price rises to $55, your trailstop of $10 will now create a new activation price of $45

  • Scenario 3 - price rises to $60, your new trailstop of $50, price drops to $51 and rises to $75 (activation is now $65)

• Advantages

  • Trailing stop moves with price action upward

  • Allows you to lock in higher profits as price continues to rise

  • Enables you to set and forget

• Disadvantages

  • Works off of dollar amount trailing stop and not based on resistance and support

  • Uses a market order that could fill at any price once your activation hits (trailing stop does not guarantee you the trailing price)

• How to Select your Trailstop

  • 15-25% of your stock price to allow for pullbacks ($100 x 15%, 20%, 25% = $15, $20, $25 trailstop)

  • Another method uses the stocks Average True Range (ATR) as your trail amount

  • Remember, all stocks have an ebb and flow (people sell to take profit and new buyers enter)

• Personal Thoughts

  • Great for highly liquid stocks to avoid slippage; though in fast moving rises and falls there can be slippage

  • Can be disastrous with wide spreads as market orders are subject to working orders available

  • Potentially useful with intraday trading on quick moving stocks so you do not need to move your stop

  • Can be difficult to use with Options as price change can occur from both dollar movements and volatility

see other examples here