When does a ‘stop’ trigger.

[WestCoastWilson]

Hello Everyone,

As I further investigate using the various ‘stops’ out there, I am hearing that in order for a ‘stop’ to trigger, the price of the ‘stop’ must be reached two separate times before it is triggered. Is this true? :frown: I was under the impression that for example if I purchased my stock at $50 per share, had a stop put in place to sell it at $55, then once the stock reached $55 (the first time once my ‘stop’ is in place) or went any amount over $55, then my order/stop would be triggered to sell the stock at $55 or above (but never below $55). So I was under the impression, if I have a highly traded stock and as long as there are buyers out there for my stock, then I should not have any trouble with my stock selling at or slightly above my ‘stop’ amount (once the trade amount meets or exceeds my ‘stop’ amount). So would be great to get some feedback on this.

Thanks Everyone! :|

Wilson

[LongArm]

As I further investigate using the various ‘stops’ out there, I am hearing that in order for a ‘stop’ to trigger, the price of the ‘stop’ must be reached two separate times before it is triggered. Is this true? :frown:
No. When a stop order is triggered at the stop price, it turns into a market order to sell at whatever the current bid price is.

I was under the impression that for example if I purchased my stock at $50 per share, had a stop put in place to sell it at $55, then once the stock reached $55 (the first time once my ‘stop’ is in place) or went any amount over $55, then my order/stop would be triggered to sell the stock at $55 or above (but never below $55).
As I said in a previous thread, you can't place a stop sell order above the current price--only below it. What you're describing is a limit sell order. Once your limit order is triggered, as long as the price stays at or above your limit price long enough, your order should execute.

So I was under the impression, if I have a highly traded stock and as long as there are buyers out there for my stock, then I should not have any trouble with my stock selling at or slightly above my ‘stop’ amount (once the trade amount meets or exceeds my ‘stop’ amount).
You would be correct, generally.

WCW, I happen to know exactly where your confusion is coming from on this stuff. (And no, I'm not psychic. :eek2:) I'll explain it all in a PM tomorrow when I have some time.

[aiki14]

No. When a stop order is triggered at the stop price, it turns into a market order to sell at whatever the current bid price is.


As I said in a previous thread, you can't place a stop sell order above the current price--only below it. What you're describing is a limit sell order. Once your limit order is triggered, as long as the price stays at or above your limit price long enough, your order should execute.


You would be correct, generally.

WCW, I happen to know exactly where your confusion is coming from on this stuff. (And no, I'm not psychic. :eek2:) I'll explain it all in a PM tomorrow when I have some time.

Hey Longarm, why don't you post it in this thread. It is a topic that many new investor/traders have questions about. It will also help to assure we are talking about the same thing when we refer to stops and limits etc.

[LongArm]

Hey Longarm, why don't you post it in this thread. It is a topic that many new investor/traders have questions about. It will also help to assure we are talking about the same thing when we refer to stops and limits etc.
You're right, Aiki, and normally I would, but I was going to specifically address some advice he received on another forum that's best PM'd, not broadcast here. I'll post the part that's relevant to the newbies.

This has to do with confusion over stop orders, limit orders and stop-limit orders. I'm sure these have been explained 1000 times on this forum by now, but I'll make it 1001 ;).

Let's assume these are all SELL orders:

Stop order (a.k.a. stop loss): Used to protect oneself from a large loss. Example: Price is at $50. You place a stop order at $45. When the price drops to $45 a MARKET ORDER to sell is triggered and you'll get your sell at whatever the current bid happens to be. Naturally, you can't place a stop sell ABOVE the current price or it would trigger immediately.

Limit order: Used to lock in a profit. Example: Price is at $50. You place a limit order at $55. When the price rises to $55, you'll get your sell AT or ABOVE $55...or not at all (say, if the price retreats before your sell executes). Naturally, you can't place a limit sell BELOW the current price or it would trigger immediately.

Stop limit order: A combination of the above, used to protect oneself from a large loss. This is the confusing one for many. Example: Price is at $50. You place a stop limit order with a stop price (the trigger) of $45 and a limit price of $44.75. When the price drops to $45, a limit order to sell at $44.75 or above is triggered (as opposed to triggering a market order like you'd get with a regular ol' stop sell). As with any limit order, if the price drops below your limit price before it executes, you won't get your sell at all. IMO, stop limit orders (to sell) are usually a bad idea, because by using them you're saying, "I want to protect myself by bailing out if the price drops to $45, but if it drops below $44.75, screw it, I'll just hold on and pray for the best." Not smart. SOME brokers (like E*Trade, I believe) only allow you to set ONE PRICE for both the stop and the limit components, but that is not the norm, despite what some people will (and did, in this case) tell you. In this case, stop limits are even worse because your odds of getting the sell are lessened. My opinion is, if you want to protect yourself, forget stop limits and just use regular ol' stops to ensure you get out of your trade.

These 3 order types can also be BUY orders, but we'll tackle those another day.

Hope this helps someone.

[dk333]

ah, thanks for the explanation. but isn't there another option. trailing stop?

[LongArm]

Naturally, you can't place a limit sell BELOW the current price or it would trigger immediately.
Whoops, brainfartitis. Of course you can place a limit sell below the current price. It's just that when setting a profit target, you would place it above.

ah, thanks for the explanation. but isn't there another option. trailing stop?
Sure. Example: Price is at $50. You bought it at $47. You want to allow the stock to run as high as it's going to (within your particular trading style/timeframe) before selling. You place a trailing stop at a certain percentage or dollar amount (say, $3) below the highest price reached. The stock price rises and hits a high of $58 (pulling your stop up to $55). The stock then begins to drop and soon hits your stop at $55 (because trailing stops only move up with the price, not down). A market order to sell is triggered at that point.

For other order types, check out Investopedia.com. :p

[dk333]

thanks for all the help.

this is probably a really stupid question but...
can you change the limit orders? example, if i buy shares at market price, and then a few months later it went up a bit. at that point, can i put a certain stop/limit order that you have mentioned? or would that have to be specified at the time when you purchase shares

[LongArm]

Yes, you can change an order as often as you like. And there's usually no charge to do so, although I've read of a few brokerages who do charge a small fee (like Interactive Brokers, I think).

And there are no stupid questions.

[WestCoastWilson]

Thanks so very much LongArm! :top: I responded to your latest advice and help in much more detail via a private message earlier today. Thanks so very much for the excellent and detailed definition on those various ‘stops’. I’ll add your definitions to my notes, plus I am sure that by you listing these definitions and examples here, will definitely help others in this forum.

LongArm, with all of the great help that you have provided to me since I have been a member of this forum, you should have your own rival site to Investopedia :biggrin:, as I think that you are a tremendous help when it comes to helping us Newbies. Whereas I said before, Investopedia does not seem to be very Newbie Friendly. IMO.

Thanks again for all of your AWESOME help! :top:

Wilson