A question about using a Stop Order Loss

[Magna]

tntneo,

Thanks for your very clear descriptions. I know when I first started the myriad of order possibilities seemed very confusing (I always kept a sheet by my computer with each scenario until I had them all down cold). This should help people new to trading. Of course, if you wanted to be more complete you would have also covered limit orders, and lest we not forget, stop-limit orders. Have at it...

 

[BSAM]

Espcially for newer traders, this can be REALLY confusing. Let's see if I can help any here. Here's a simple way to remember what kind of order to place for entry/exit. I learned this from reading one of David Nassar's books a couple of years ago.

The following illustration will help you to understand:


SLoBS
_____

BLeSS



Here's the explanation:

SL=Sell Limit (o=nothing) BS=Buy Stop
BL=Buy Limit (e=nothing) SS=Sell Stop

"SloBS" orders are placed ABOVE current market value.
"BleSS" orders are placed BELOW current market value.

Let's say XYZ is trading at $50. (The line in the above illustration represents $50.)


EXAMPLES:


Sell Limit:
You go long XYZ at $50 and you want to make a dollar.
Place your Sell Limit order ABOVE the current market at
$51.

Buy Stop:
Let's say XYZ is trading at $50, but you only want to
enter if XYZ trades at $51. Place your Buy Stop
order ABOVE the current market at $51.

Buy Limit:
Let's say XYZ is trading at $50, but you think it is about
to pull back a little. You decide that you want to enter
when XYZ goes down to $49. Place a Buy Limit order
BELOW the current market at $49.

Sell Stop:
Say XYZ is trading at $50 and you go long at $50. You
decide you are willing to risk $1 before you exit the
trade. Place your Sell Stop order BELOW the current
market at $49.


A stop order becomes a market order when your stop price is achieved. You can also specify a limit. For example, on a Buy Stop you could place the Buy Stop at $51/Limit $51.10.

Hope this helps. Others chime in if I have erred anywhere here.

BSAM