What is a limit order?
A limit order is an order to buy or sell a stock at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. A limit order is not guaranteed to execute. A limit order can only be filled if the stock’s market price reaches the limit price. While limit orders do not guarantee execution, they help ensure that an investor does not pay more than a pre-determined price for a stock. Full Story
Let’s using an example
Purchase one lot in the 109 to 111 ranges, purchase the second lot in the 99 to 101 ranges and place a stop at 81.00
The first part of the order is to purchase shares in the 109 to 111 ranges. This is where you need to determine an entry point. So let’s say you choose 111 to make it easier.
You would enter the order as follows:
Place an order to buy 100 shares at a limit of 111 or better. Under order type you would select “limit”. This means you will not pay more than 111 and you could pay less if the stock drops below that price. So in the case of IBB, the most you would pay for the stock is 111. However, if you place a market order, you would pay whatever price the stock is trading at.
What’s a market order
A market order is a request by an investor – usually made through a broker or brokerage service – to buy or sell a security at the best available price in the current market. It is widely considered the fastest and most reliable way to enter or exit a trade and provides the most likely method of getting in or out of a trade quickly. For many large-cap liquid stocks, market orders fill nearly instantaneously.
Any time a trader seeks to execute a market order, this means the trader is willing to buy at the asking price or sell at the bid price. Thus, the person executing a market order is immediately giving up the bid-ask spread. Full Story
At The Tactical Investor, we have never placed a market order and the reason is simple; our goal is to get into the stock at the best possible price best on our risk to reward models. We are looking to get into the stock at a discount. If you place a market order IBB, and the stock suddenly jumped from 111 to 120, you could end up paying as much as 120, as you are basically instructing the system to purchase the ETF at the current price, regardless of what it is. With a limit order, you control the price you are willing to pay for a given stock or ETF.
Stop limit order
Stop-limit orders are a conditional trade that combines the features of a stop loss with those of a limit order to mitigate risk.
Stop-limit orders enable traders to have precise control over when the order should be filled, but it’s not guaranteed to be executed.
How Stop-Limit Orders Work
A stop-limit order requires the setting of two price points.
Stop: The start of the specified target price for the trade.
Limit: The outside of the price target for the trade. Full Story
So for example, if you place an order to sell IBB at 81.00 but under order type, you placed “stop-limit” The order would only be triggered once IBB traded to 81.00, then it would become a limit order and the system would try to close the position out at 81.00 or better.
However, as we use end of day stops, you would not need to place a stop-limit order
What is an “end of day stop”?
It’s like a mental stop as you don’t enter any trade in your brokerage account until the stock closes at or below the stated stop price. In the case of IBB, the stop is 81.00. IBB would have to close at 81.00 or below for the stop to be triggered. Then the next day you would enter a limit order (under order type select limit) to sell IBB at 81.00 or better. Some traders might want to get out in a hurry and if that is the case they could enter GTC limit sell order to get out at 80.50 or better. However, note that most of our stocks tend to trend upwards so one can generally close the position at a better price than the stop price.
- An end of day stop is akin to a mental stop: it is triggered only if the stock closes at or below the suggested stop price.
- If it closes at or below the stop price, the next day you enter a GTC limit sell order at or close to the suggested stop price. In the above example, you would enter a GTC limit sell order to close IBB at 81 or better
- In the event the stock gaps down and closes well below the stop, one would enter GTC limit sell order at the best price they can get. So for example, if IBB gapped down to 75.00, then you would try to get out at 75 or better. You would not wait for it to trade to 81 before trying to get out. This happens rarely and when it does occur, we usually send out an interim update with additional instructions.
Duration of an order
One usually places a good to cancel (GTC), if that is not available then select the longest available time period provided. If we don’t get a fill within a certain period of time we will cancel this play and replace it with another play. In that event, you would simply log into your account and cancel this order.
How To Buy And Sell Shares
Some investors are greenhorns; investing is a whole new field for them. If you fall into this category then this video should help you understand the process.
Virtual Stock Trading Accounts
If you want to paper trade you can use one of the following sources listed below.
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