How to protect account with a stop order

Dec 4, 2017
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#1
Let's say a stock is trading at $32 per share, and you want to protect it from going down and losing significant amount, so you put an automatic stop sell order at $30 - but this does not protect you in the event of the stock going down really fast in a gap situation. Is there a better way? What is stop-limit order and is it a better protection? If not, what do you all do to protect your account in a swing trade and not able to monitor the stock all the time?:|

Thanks in advance for your expert advices...
 

tomorton

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Feb 28, 2002
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#2
You will find the answer in the T&C of your broker (or service provider).

For example, the T&C in my spreadbetting provider (I'm in the UK) says they will close a trade at the stop order price unless price gaps beyond it, in which case they will close the trade at the earliest opportunity if price is still at or beyond the stop-loss price you set. So a gap down below the stop set on a long position will lead to a larger than expected loss, unless either price instantly rises above your stop-loss order before the firm has the chance to close you out, or you pay for the use of a guaranteed stop-loss order. This is treated as if it is always executed at the GSL price, even in the face of gaps etc.

On limit orders they say -
"A Limit Order is an instruction to deal if Our Quote becomes more favourable to you. A Limit Order can be used to either open or close a Transaction. Each Limit Order has a specified limit level, set by you, subject to our acceptance. A Limit Order will be triggered if our bid or offer price (as appropriate) moves in your favour to a point that is at or beyond your specified limit level. Once a Limit Order is triggered we will seek to open or close a Transaction at a level that is the same or
better than your limit."
Not sure if limit orders are the answer to the gap issue.

I never use stop limit orders or GSL's. I accept a certain amount of gapping is possible, though I trade mostly forex and indices so they are infrequent and small. I would be less happy trading small cap or very volatile stocks, or very volatile markets like crypto-currencies for this reason.

Remember that some gaps will be positive, so as long as you can stay in the game there is potential upside.
 

itspossible

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Sep 25, 2014
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#4
Thank you so much for that lengthy answer!

Happy trading...
i traded stocks years ago and they are far too risky.i have seen them half in a day and certain stocks that i have held have been suspended(unable to trade and trapped in the stock)In my opinion it is better to trade a less risky instrument.the stock spreads can also be horrible.
 
Feb 22, 2017
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#5
i traded stocks years ago and they are far too risky.i have seen them half in a day and certain stocks that i have held have been suspended(unable to trade and trapped in the stock)In my opinion it is better to trade a less risky instrument.the stock spreads can also be horrible.
If you're coming across those kind of situations as much as you say then you can't be checking the fundamental status of the companies you're going into.

If you expect to stick cash into stocks with no in depth analysis of what the company is/does and it's financial state then yes, you're potentially going to end up in bad situations.

I'm no expert for trading stocks but I do put the stocks through my own screening test which includes checking over the financials, and so many times I see people buying a stock that's heading for the gates of hell with insane debt (just because share price is being pulled up with the overall bull market), god knows how they don't see this.

Side Note - what are you currently trading?

Regards,
Steve
 

tomorton

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Feb 28, 2002
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#6
i traded stocks years ago and they are far too risky.i have seen them half in a day and certain stocks that i have held have been suspended(unable to trade and trapped in the stock)In my opinion it is better to trade a less risky instrument.the stock spreads can also be horrible.

These sound like very small-caps. A last resort due to the risk in my experience unless you absolutely must take advantage of a bull market in e.g. some growing or new tech sector, all of whose members are rising as well as their index plus the main market BUT you can't trade the indices or larger caps for the equivalent opportunity.
 

itspossible

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Sep 25, 2014
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#7
^traded the ftse 100 stocks during the tech boom-may have been a bad time as it peaked-good lesson though-lost 5k
but made it all back spreadbetting dow/ftse-out of the game now:cheesy: