Investing - Trailing Stop Orders
I trade with TD Ameritrade. They have an order called aTrailing Stop Order, where you can enter a buy order whiich is to become active at a specified amount above the current price (simplifying a bit here) or a sell order which is to become active at a specified amount below the current price. The trailing part of the equation is that the activation price for a buy TS Order will fall if the current price falls - (and vice versa for a sell TS order.)
However, they require an open position in order to place one of these orders. Why? If I want to buy a stock which is trending downward, wouldn't it be useful to place a buy TS order, say 1% above the current price, knowing thast my activation price is probably going to go down if the trend continues, but that if the stock starts an upward rise, I will have my order placed 1% above the lowest point the stock reached.
I could see placing a lot of my orders this way as One-Day orders. Why is this not possible?
David
However, they require an open position in order to place one of these orders. Why? If I want to buy a stock which is trending downward, wouldn't it be useful to place a buy TS order, say 1% above the current price, knowing thast my activation price is probably going to go down if the trend continues, but that if the stock starts an upward rise, I will have my order placed 1% above the lowest point the stock reached.
I could see placing a lot of my orders this way as One-Day orders. Why is this not possible?
David
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I trade with TD Ameritrade. They have an order called aTrailing Stop Order, where you can enter a buy order whiich is to become active at a specified amount above the current price.
.....................why would you want the above...........?.........
you want to buy it "higher" than it is now?
If IBM is 90 and you want to buy some at 85 you just place a "good til cancelled" limit order to by IBM at 85 (or lower). If it goes that low, when it hits 85 your order becomes a market order. If it is moving fast when it falls from 85 1/16 to 85 you might buy it slightly lower.
If it closes on a Friday at 87 and then there is bad news over the weekend, and it opens Monday at 83, you'd buy it at 83.
You would never buy it higher than 85 unless you changed your good til cancelled order to a higher price, like 87 1/2.
If the stock is 90 and you place an order to buy at 92 or less, you'll be filled at 90.
.....................why would you want the above...........?.........
you want to buy it "higher" than it is now?
If IBM is 90 and you want to buy some at 85 you just place a "good til cancelled" limit order to by IBM at 85 (or lower). If it goes that low, when it hits 85 your order becomes a market order. If it is moving fast when it falls from 85 1/16 to 85 you might buy it slightly lower.
If it closes on a Friday at 87 and then there is bad news over the weekend, and it opens Monday at 83, you'd buy it at 83.
You would never buy it higher than 85 unless you changed your good til cancelled order to a higher price, like 87 1/2.
If the stock is 90 and you place an order to buy at 92 or less, you'll be filled at 90.
your title of the question was:
Investing - Trailing STOP Orders
The word STOP means the order would be a SELL order. You can not BUY with a STOP.
Investing - Trailing STOP Orders
The word STOP means the order would be a SELL order. You can not BUY with a STOP.
ASKER
The work STOP means "STOP my LOSSES." A stop loss order, including the TRAILING STOP varieties, can be used to buy shares to limit losses on a short position, or to sell shares, to limit losses on a long position.
Now, to answer your question about why I might want to pay more than the current asking price for a stock: Let's say IBM is trending downward at $90 tomorrow morning, and let's say that I want to go long on IBM. I would like to watch it and see if it keeps going down or if it reverses course. To flip your question around, why would I pay $90 for the stock if I expect it will be below $90 in the very near future?
If I have nothing else to do, I'm going to watch it and buy it when it hits bottom. Of course, it will rise and fall the whole time, and I will have to decide ahead of time how much of a rise in price I can tolerate before I open my long position. For example, I might decide that I'll buy it if it rises to more than $90.50.
Now, let's say that it continues to drop and hits 89.90, Well, I'm not going to watch it rise to $90.50 any more, I'm going to pull the trigger at $90.40. And so on. This works well as long as I have the day off. But, since I don't, I can't do it.
That's why I want a "trailing start." Does it make sense now?
David
Now, to answer your question about why I might want to pay more than the current asking price for a stock: Let's say IBM is trending downward at $90 tomorrow morning, and let's say that I want to go long on IBM. I would like to watch it and see if it keeps going down or if it reverses course. To flip your question around, why would I pay $90 for the stock if I expect it will be below $90 in the very near future?
If I have nothing else to do, I'm going to watch it and buy it when it hits bottom. Of course, it will rise and fall the whole time, and I will have to decide ahead of time how much of a rise in price I can tolerate before I open my long position. For example, I might decide that I'll buy it if it rises to more than $90.50.
Now, let's say that it continues to drop and hits 89.90, Well, I'm not going to watch it rise to $90.50 any more, I'm going to pull the trigger at $90.40. And so on. This works well as long as I have the day off. But, since I don't, I can't do it.
That's why I want a "trailing start." Does it make sense now?
David
ok, you are getting into short positions, where you sell a stock you do not own. In that case, yes, a stop will buy the stock back for you at higher prices to prevent losses.
Schwab has strict financial requiements to be able to short a stock.
When you say "trailing start" do you mean on a long position or a short position? I do not think you can place an order that will buy a long stock at a price higher than it is now. You can buy a stop at a lower price. EX: It is 90 today and you place a limit order to buy at $88.
Some technicians like to buy stocks high and sell them higher, especially those that are making new 52 week highs. They say if they make one new 52 high it will make more, thus you buy higher.
I am not aware of an order I can place with Schwab that lets me buy a stock higher than it is now, unless I am covering a short position.
Gary B. Smith at Street.com uses charts. He often says "I would not buy IBM at 28, but it if rises to $30 I'd buy it." He is using chart patterns, thinking that once it rises to 30 it is "breaking out" and ready to run higher. I am not aware of an order you can place to do this. You just have to watch it and buy it. I am watching my account about 7 hours a day. It is very hard if you can not watch your account and the trades as they happen.
Schwab has strict financial requiements to be able to short a stock.
When you say "trailing start" do you mean on a long position or a short position? I do not think you can place an order that will buy a long stock at a price higher than it is now. You can buy a stop at a lower price. EX: It is 90 today and you place a limit order to buy at $88.
Some technicians like to buy stocks high and sell them higher, especially those that are making new 52 week highs. They say if they make one new 52 high it will make more, thus you buy higher.
I am not aware of an order I can place with Schwab that lets me buy a stock higher than it is now, unless I am covering a short position.
Gary B. Smith at Street.com uses charts. He often says "I would not buy IBM at 28, but it if rises to $30 I'd buy it." He is using chart patterns, thinking that once it rises to 30 it is "breaking out" and ready to run higher. I am not aware of an order you can place to do this. You just have to watch it and buy it. I am watching my account about 7 hours a day. It is very hard if you can not watch your account and the trades as they happen.
ASKER
David