Investing in the Stock Market
Stop Orders and Triggers
(Date posted: October 31, 2010)
Warning - you must take sole responsibility for any losses you suffer in the stock market. This article discusses Stop Orders and their Triggers for use in a low-risk stock trading system.. It also provides sample values for these items. This information is meant only for experienced stock traders or investors. An overview of the stock trading system is described in this article. Here are the topics for this page: Introduction to stop orders
First stop order
Second stop order
Third stop order DISCLAIMER -- Stock trading is not appropriate for everyone. There is a substantial risk of loss associated with trading the stock market. Losses can and will occur. No system or methodology has ever been developed that can guarantee profits or ensure freedom from losses. No representation or implication is being made that using this methodology or system or the information in this article will generate profits or ensure freedom from losses.
A stop order is a permanent (good til cancelled) order to your brokerage firm to close out an existing position if the market price for that position falls to the stop order price. (Note: the good til cancelled order has to be renewed every 60 days.)
The purpose of a stop order is to close out a position if it starts losing too much money.
Using these stop orders -- The calculations for the following stop orders and trigger values normally would be set up on a spreadsheet so the values can be generated automatically, once you have inserted the proper market prices and formulas.
As you gain experience using this system, you may choose to change one or more of the sample values.
This stock trading system assumes that your positions in the stock market are always protected by stop orders until sold.
Definitions to use with these stop orders -- Weekly close is the closing market price for a particular stock the last day of the trading week.
Maximum weekly close is the highest weekly close since the stock was purchased. This price is raised as the market price continues to climb; however, it is never lowered.
A trigger is my term for a signal for you to replace one type of stop order by the next higher type of stop order.
For definitions of low risk market and medium risk market see this subtopic in the previous article.
This stop loss order is set immediately after buying a stock. Its purpose is to maintain your position during minor market fluctuations, but to close out your position if the market price declines too far.Calculating the first stop loss order -- For a low risk market, this stop price is set 10% below cost of stock. For a medium risk market, this stop price is set 15% below cost of stock.
This stop loss order is set (and the existing stop order is cancelled) after the following trigger value has been reached or exceeded on a weekly close. The purpose of this stop order is to close out your position at an approximate breakeven if the market price declines too far.Trigger for the second stop loss order -- For a low risk market, this trigger value is 115% of the cost of stock. For a medium risk market, this trigger value is 122.5% of the cost of stock. Calculating the second stop loss order -- For a low risk market, this stop price is set 5% above the cost of stock. For a medium risk market, this stop price is set 7.5% above the cost of stock.
This profit taking stop order is set (and the existing stop order is cancelled) after the following trigger value has been reached or exceeded on a weekly close. The purpose of this stop order is to close out your position at a profit if the market price declines too far.Trigger for the profit taking stop order -- For a low risk market, this trigger value is 150% of the cost of stock. For a medium risk market, this trigger value is 175% of the cost of stock. Calculating the profit taking stop order -- This third and last stop order is a trailing stop that is raised, but never lowered, as the market price continues to climb. For a low risk market, this stop price is set at 85% of the maximum weekly close. For a medium risk market, this stop price is set at 80% of the maximum weekly close.
Return from Stop Orders and Triggers to Have More Money main page
Return from Stop Orders and Triggers to Home page
|
