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Limit Orders
Limit orders are placed to avoid buying stock at a price higher than you want to. Limit orders are also placed to avoid selling stock at a price lower than you want to. Buy limit orders can only be executed at the limit price or lower, and sell limit orders can only be executed at the limit price or higher. The investment risk attached to such orders is that in a fast moving stock market the stock price may move above the limit order before the buy order can be executed. Then traders miss out on buying a stock but do not buy at an exceptionally high price. When a stock goes down very quickly missing the limit order may mean having to sell stock at too low a price but, usually, it means selling stock shares in time. Serious investors and traders as well as the SEC recommend never buying or selling at market price but only using limit orders.
There are a number of different types of limit orders. We describe the standard type above. In addition, there are other orders that place limits on buying and selling. Stop orders and a stop limit order. Both short term trading and long term investing make use of stop orders. A stop order is an order to buy or sell a stock once the price of the stock reaches a specified price. This is the stop price. When the stock reaches the price the stop order becomes a market order. There are buy stop orders and sell stop orders.
You will enter a buy stop order at a price above the current market price. A buy stop order is commonly entered during a short sale and is always above the current market price. The point is to limit loss or lock in gain when short selling. A sell stop order is used to limit loss for a falling stock price. You will always set the sell stop order below the current market price. In each case you will not want to set the price to close to the market price or a minor fluctuation will cause the order to be executed. On the other hand setting the price too far away will only lead to more loss. As with all trading keeping track of market movement with Candlestick stock charts will reduce the risk of being caught off guard.
Although technical analysis with tools such as Candlestick chart patterns will help you predict market movement, there is always stock market risk. Thus using limit orders and stop orders will help reduce the risk of investment if a stock moves out of an expected trading range or suffers an unexpected market reversal.
2. Limit orders are placed to avoid
buying stock at a price higher than
you want to. Limit orders are also
placed to avoid selling stock at a
price lower than you want to.
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3. Buy limit orders can only be
executed at the limit price or
lower, and sell limit orders can
only be executed at the limit price
or higher.
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4. The investment risk attached to
such orders is that in a fast moving
stock market the stock price may
move above the limit order before
the buy order can be executed.
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5. Then traders miss out on buying a
stock but do not buy at an
exceptionally high price. When a
stock goes down very quickly
missing the limit order may mean
having to sell stock at too low a
price but, usually, it means selling
stock shares in time.
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6. Serious investors and traders as
well as the SEC recommend never
buying or selling at market price
but only using limit orders.
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7. There are a number of different
types of limit orders. We describe
the standard type above. In
addition, there are other orders
that place limits on buying and
selling.
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8. Stop orders and a stop limit order.
Both short term trading and long
term investing make use of stop
orders. A stop order is an order to
buy or sell a stock once the price of
the stock reaches a specified price.
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9. This is the stop price. When the
stock reaches the price the stop
order becomes a market order.
There are buy stop orders and sell
stop orders.
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10. You will enter a buy stop order at a
price above the current market
price. A buy stop order is
commonly entered during a short
sale and is always above the
current market price.
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11. The point is to limit loss or lock in
gain when short selling. A sell stop
order is used to limit loss for a
falling stock price.
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12. You will always set the sell stop
order below the current market
price. In each case you will not
want to set the price to close to the
market price or a minor fluctuation
will cause the order to be executed.
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13. On the other hand setting the price
too far away will only lead to more
loss. As with all trading keeping
track of market movement with
Candlestick stock charts will
reduce the risk of being caught off
guard.
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14. Although technical analysis with
tools such as Candlestick chart
patterns will help you predict
market movement, there is always
stock market risk.
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15. Thus using limit orders and stop
orders will help reduce the risk of
investment if a stock moves out of
an expected trading range or
suffers an unexpected market
reversal.
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16. A stop-limit order combines the
features of a stop order and a limit
order. When the stop price is
reached, the stop-limit order
becomes a limit order to buy or to
sell at a specified price.
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17. This method can be more exact in
that the investor can sell at exactly
the price he or she wants,
providing that a fast moving
market does not move past the
stop-limit price.
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18. With extreme market volatility this
can happen. This is why, even
when placing limit orders and their
cousins, stop orders, the investor
or trader needs to stay in touch
with the market using Candlestick
basics such as Candlestick charting
techniques and Candlestick chart
analysis.
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19. Using these technical analysis tools
will let the market tell the trader
and investor what the market is
likely to do.
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