Canadian Money Forum banner

1 - 11 of 11 Posts

·
Registered
Joined
·
22 Posts
Discussion Starter #1
Happy Thanksgiving Everyone!
How many DIY investors use sell stop and limits to protect profits? I seem to understand the selling stop but the limit has me somewhat confused. I understand that it is possible as a stock falls that not necessarily does your sell order happen. "Confused"
 

·
Registered
Joined
·
1,455 Posts
Stop loss orders are mostly used by traders to protect their capital. Stop orders are market order, but stop limit, is exactly that - you set the price. It may or may not strike.
 

·
Registered
Joined
·
90 Posts
By my understanding, a limit order or stop loss triggers a market order at a certain price. Just because the trigger occurs, doesn't necessarily mean you will be able to fill all your shares at that price.

However, if set overnight, the price may "gap" up or down the following morning and fly right past you limit order. i.e. stock price was $20 last night, set a limit buy order at $21, and stock gaps up to $22. In this example, your limit order would not be filled.

Also, when using the stop loss on a large # of shares, or on a stock with poor volume, that during the time it takes for the triggered stop loss to be filled, the price may fall further. Youmay receive a market price below your stop loss if this happens.

However, I believe this is generally a rare event, and in most trades there is enough liquidity and efficiency in processing to fill your order at the price you set.

Another thing to watch out for is setting stop loss orders on penny stocks. When I was first starting out, I noticed with more frequency than could be coincidence that the stock price would decline exactly to the level I set the stop and then rebound. No matter how great a margin of safety I gave myself. I imagine this might be an institutional trader with better information than me who will sell his large block of shares and repurchase it immediately just to trigger all the stop loss orders and pick extra shares up for cheap.
 

·
Registered
Joined
·
274 Posts
I only use them on occasion for high side sell orders. By that I mean to automatically sell a stock when it reaches a certain level above where it is currently.
 

·
Registered
Joined
·
10,637 Posts
By my understanding, a limit order or stop loss triggers a market order at a certain price. Just because the trigger occurs, doesn't necessarily mean you will be able to fill all your shares at that price.

However, if set overnight, the price may "gap" up or down the following morning and fly right past you limit order. i.e. stock price was $20 last night, set a limit buy order at $21, and stock gaps up to $22. In this example, your limit order would not be filled.

<... other info deleted ... >
Hmmm ... I wonder if this is different based on institution and their trading platform.

What was explained at the online trading seminar when I first started online trading was that a "stop loss" order tracked the sales of lots of 100 or more shares. So I have stock X that closed yesterday at $100, I could set a stop loss order for $90. If at any time during the day, lots of 100+ traded for $90 or less, the stop loss would activate as trigger as a market order.

So if the orders that trigger the stop loss were for $89 and my market order goes through for $85 - I get the proceeds at $85, even if the stock later rebounds to $95.

I haven't used a stop loss or limits to sell - only market orders.

I use limit orders on my buys to make sure I'm not over paying.
Situation 1 - Stock Y is trading at $15 and I've decided I'm willing to pay $13,
I'll put in an order to buy with a limit of $13 for a day, week or month. I have to monitor it but if it drops long enough, with enough shares, I'll end up with my purchase at my price or in some cases, lower.

Situation 2 - Stock Z is trading at $28 and I've deciding I'm willing to pay a maximum of $30, I'll put in a buy with a limit of $30. The system warns me I'm putting in an order exceeding the current trading value and usually immediately executes the order. I got into this habit when my brother-in-law made the mistake of putting in a market buy order for RIM without considering how volatile it was at that time. When he checked the details of the filled order, it was excuted at $30/share more than he was expecting.
 

·
Registered
Joined
·
2,953 Posts
Never used them in all of my years of investing. That doesn't mean that they're not a good idea for the small investor but I like to keep life simple by buying and holding a portfolio of mainly broad-based ETF's.

To each his own.
 

·
Registered
Joined
·
5,223 Posts
as slacker has said, i would be very careful, watch for flash crashes

i was looking at zmt recently and looked away and then looked again and it had dropped 3 dollars instantly (from 18 to 15 roughly)

if you had a sell order in place at 15 you would have lost some money, maybe a lot of money

it was all about a particular stock in the etf that had a serious flash crash and that brought down the etf

here is a screen shot, that precipitous drop and rise occurred in about 2-3 minutes:

 

·
Banned
Joined
·
94 Posts
Happy Thanksgiving Everyone!
How many DIY investors use sell stop and limits to protect profits? I seem to understand the selling stop but the limit has me somewhat confused. I understand that it is possible as a stock falls that not necessarily does your sell order happen. "Confused"
Be careful with Stop Limit and Stop orders. If you had these type of orders during the flash crash then you probably would have lost $ as your order would have been triggered. IMHO, these orders are NOT helpful for investors. would you sell your house, if your neighbour sell his below market!?
 

·
Banned
Joined
·
356 Posts
Be careful with Stop Limit and Stop orders. If you had these type of orders during the flash crash then you probably would have lost $ as your order would have been triggered. IMHO, these orders are NOT helpful for investors. would you sell your house, if your neighbour sell his below market!?

It is my understanding that a Limit Sell order would not have been triggered during the flash crash. Am I correct? a Limit Sell does kind of negate the point of putting in a stop loss a bit.

I'm one of those losers who lost money when my stop loss was set at $228 for Apple. I'm still VERY bitter. I don't believe that these things are part of the "risks" involved in the market.

I had to get back to even by buying Apple call options during the summer.
 

·
Registered
Joined
·
10,637 Posts
IMHO, these orders are NOT helpful for investors. would you sell your house, if your neighbour sell his below market!?
*shrug* - it depends how it all plays out and what your risks are.

If either the "flash crash" catches you or the drop is temporary, then yes, I'd expect you to be unhappy.

However, if you tied up with errands and don't notice the six or seven houses in the area have sold at 20+% below market, leading to a couple of years of 50+% below today's market then an "automatic sell" that went through for 22% down doesn't sound like a bad deal. If you were on top of it and sold for a 5% drop, then the automatic sell is not such a good deal.

IMHO, a couple of key factors are:
a) how much profit is on the table.
b) how quickly the process of "find out new, evaluate new and react to news" will take.
c) what is the plan for these gains.

At the end of the day, it's like everything else, know the tool and it's attributes before deciding if it is useful or not for you.
 
1 - 11 of 11 Posts
Top