Question about exit strategy?

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Jun 21, 2016
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#1
Im just starting to get into stocks and daytrading and I have been reading up on all the basics.

Quick question, if I buy shares in a stock, do I wait to see if it goes up then put in a stop loss or stop limit order when I sell it to protect my losses or ensure a profit , or do I do that right after I buy the stock to protect my losses in case the stock does the opposite of what I expected and goes down? Any help is appreciated.
 

timsk

Well-known member
Mar 18, 2002
6,764
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#2
Im just starting to get into stocks and daytrading and I have been reading up on all the basics.

Quick question, if I buy shares in a stock, do I wait to see if it goes up then put in a stop loss or stop limit order when I sell it to protect my losses or ensure a profit , or do I do that right after I buy the stock to protect my losses in case the stock does the opposite of what I expected and goes down? Any help is appreciated.
Hi DD,
Welcome to T2W.

There's no right or wrong way to trade; very few hard and fast rules. That said, if you're going to use a stop loss, the idea is to limit your losses in the event that the market goes against you. On this basis, conventional wisdom dictates that you enter your stop loss at the time the trade is opened. Many platforms will do this automatically at a pre-set amount (which can be adjusted later - if required). It's a useful feature - especially for day traders who tend to utilize tight stops. Ask anyone who's been in this game a while and they'll tell you that anything can - and does - happen. That includes opening a trade and, the instant it's executed but before one's had time to place a stop loss, the internet connection goes down or the trading platform crashes. And Sods law dictates these things only happen in a fast moving market; one that's going against you!

The rule of thumb is to plan for the worst and, while you have exposure in the market, assess your risk and implement whatever measures are necessary to ensure the risk is minimized as much as possible.
Tim.
 

Rhody Trader

Well-known member
Dec 11, 2004
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Massachusetts
www.TheEssentialsOfTrading.com
#3
Timsk has hit on the major points. One thing I would recommend, however, is not using a Stop Limit. A standard stop order becomes a market order when the designated price is reached or exceeded. As such it is executed as the next available price.

A Stop Limit is a stop order that becomes a limit order. There is no guarantee that a limit order is executed the way a market order is. This is especially bad if you're using it to protect your downside because a limit is an "or better" order. In other words, if the market is going against you, it would need to turn around for your limit order to be executed. If it doesn't, you won't be taken out of the trade.
 
Jun 21, 2016
3
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#4
Timsk has hit on the major points. One thing I would recommend, however, is not using a Stop Limit. A standard stop order becomes a market order when the designated price is reached or exceeded. As such it is executed as the next available price.

A Stop Limit is a stop order that becomes a limit order. There is no guarantee that a limit order is executed the way a market order is. This is especially bad if you're using it to protect your downside because a limit is an "or better" order. In other words, if the market is going against you, it would need to turn around for your limit order to be executed. If it doesn't, you won't be taken out of the trade.

so say for instance if I take positions of a stock at $10 a share and I think its going to go up, but I don't have the time to check the charts consistently all day, what would you suggest I place the stop at, in case it goes up and I miss it, but then goes down again? im not sure if I worded this right. thanks for all help too.