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Weekend Newsletter for March 13, 2010          Please forward to a friend! (Subscribe)
Read our Weekend Report online.

The Week At A Glance According To The Charts
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Stop Loss and Stop Limit Orders

      

  • Stop Loss and Stop Limit Orders -- by Bill Kraft
    Copyright 2010, Makin' Hay, Inc., All Rights Reserved
    Bill Kraft
    Bill Kraft
    Editor

    In recent weeks, I have written about risk and included concepts like protective puts and stop loss orders as ways a trader might endeavor to cut losses in the event a position moves against her. The articles sparked a question from a subscriber who wanted to know about the difference between stop loss and stop limit orders and how the two might be used by a trader.

    The stop loss order is an order to a broker that says if a stock hits a specific price the position is to be closed at the market. Suppose, for example, that we own shares of XYZ trading at $25 a share and we see a support around $24.25. If the stock goes below $24.25, it has broken support and is no longer showing the bullishness for which we initially bought the stock. In such a circumstance we might place a stop loss order at $24.20 thereby instructing our broker to sell our shares in the event XYZ hits $24.20 OR BELOW. Once the stock price hits $24.20 or below, our order goes to the market as a market order. I emphasize the "or below" part because there are times when a stock may gap down and never touch our stop. In the XYZ example, suppose, for example, that the stock closes at $25 a share today and that this evening it announces unexpectedly poor earnings. Tomorrow, the stock opens at $23 a share. Well, it didn't hit our stop price at $24.20, but passed right over it. In that event, our stop is activated, the sell at the market order goes to the floor, and we are sold out of the position at the market which is now around $23. While we did not get the $24.20 we might have expected, but, quite importantly, we are out of the position and that might not be a bad thing since the stock is falling sharply and we want to cut losses.

    Instead of utilizing a stop loss order, we might have chosen a stop limit order. Actually a stop limit order is two separate orders combined into one. The first part, the stop is the same as I described in the preceding paragraph. The second part is the limit which places a limit on what we are willing to take. Using the XYZ example, above, we might place a stop limit with a stop at $24.20, limit, $24. Now, we have instructed our broker to sell our shares if the price hits $24.20 or below, but only if we can get $24 or better. In the situation where the stock gaps down the following morning, our stop would be hit because the price is now at $23, well below our stop, but we would not be sold out of the position because our order was to sell at a limit of $24.20 and since the stock is selling well below our limit, we would not be filled and would still own the falling stock. In general, then, if we are placing a stop so we can get out of a position that is moving adversely, we would probably want to use a stop loss rather than a stop limit order.

    When might we want to use a stop limit order? Perhaps, if we saw a stock that was dealing with a resistance and we wanted to buy shares, but only if it broke above that resistance. Let's say ABC has been trading in a range between $14 and $16 a share and we saw a triple top resistance at $16. If the stock breaks through that resistance, we might want to own shares, but we would like to get in fast on that break above $16. In such circumstances, we might choose to place a buy stop limit order. The order might be buy stop at $16.10, limit $16.50. By that order, we have instructed the broker to place a limit order to buy the stock at $16.75 or better, but only if the stock hit $16.10 or higher. In that event, if the stock broke resistance and hit our stop number, our limit order would go to the floor, and we would buy the stock provided it was at or below our limit of $16.75. Such an order would prevent the situation where the stock broke above resistance, but rocketed past a price at which we were willing to buy.

    As you can see, these orders, used properly, can be very valuable additions to a trader's arsenal. In "Trade Your Way to Wealth," I discuss in detail a number of important orders available to the trader that can be used to help control losses and to protect gains. Knowledge of available orders can be extremely helpful to the trader and I often use them in my own trading.

    You can comment on this article on my blog!

    Good Trading!

    Bill Kraft
    Editor of $10 Trader, Option Trader and Trend Trader

    "Trade Your Way to Wealth" by Bill Kraft is an Amazon.com best seller!

    "Smart Investors Money Machine" is Bill Kraft's most recent publication.

    "Trading for Keeps: Making Money with Low Risk Option Trades" a trading DVD by Bill Kraft.

    Mr. Kraft's past articles are posted on our website for your review.


  • $10 TRADER -- by Bill Kraft

    We really enjoy trading stocks that are $10 and under. Often they provide the chance to enjoy high percentage gains. With that opportunity comes additional risk so we try to watch trendlines and support levels in an attempt to minimize any losses.

    Chart by StockCharts.com
    Please turn on your ability to receive graphics. We are providing you with a detailed chart of this stock. If you are unable to turn on graphics, please CLICK HERE.


    PIKE (Pike Electric Corporation)
    Company Profile
    $10 Trader closed a profitable trade in PIKE this week, the second since December. I try to keep an eye on this stock because it looks to me like it may have some large breakout potential. In the meantime, it has been in a short term uptrend and a dip to and bounce up from that line may well offer yet another opportunity to profit.



    Try our $10 Trader Real-Time Alert Service!
    Details Here.



    9 Free Reports! Choose any 3 Click Here!


  • OPTION TRADER -- by Bill Kraft

    Our Option Trading Service is for conservative traders that understand leverage principles. We focus on powerful option trading strategies that place volatility and momentum in your favor. And we pride ourselves on minimizing our losses. We always know our downside potential in a trade.

    Chart by StockCharts.com
    Please turn on your ability to receive graphics. We are providing you with a detailed chart of this stock. If you are unable to turn on graphics, please CLICK HERE.


    HAL (Halliburton Company)
    Company Profile
    HAL remains in an uptrend and bounced up off the trend line on Friday. I am looking at the possibility of buying some LEAPS calls on bounces off the trendline such as the one that just occurred. It looks like HAL is in an uptrending channel so one thing I will consider is buying the LEAPS calls on a bounce off the lower channel line and selling at a bounce down from the upper channel boundary.


    Try our Option Trader Real-Time Alert Service!
    Achieve returns with us like 16.48% return in 5 days!
    Details Here.



  • TREND TRADER -- by Bill Kraft

    Trend trading as we try to practice it is a form of momentum trading. We prefer to try to capture profit out of the middle of the trend rather than try to catch reversal at bottoms and tops.

    Chart by StockCharts.com
    Please turn on your ability to receive graphics. We are providing you with a detailed chart of this stock. If you are unable to turn on graphics, please CLICK HERE.


    OHI (Omega Healthcare Investors Inc.)
    Company Profile
    After capturing a nice dividend (32 cents) recently, I closed my position at a profit after about a month and a half. The stock dipped at a resistance on Friday and may retreat to the uptrend line that began in February. I'm looking at a possible re-entry on a retreat to and bounce from that trendline or, alternatively, a break above the current resistance with some follow through.


    Try our Trend Trader Real-Time Alert Service!
    Details Here.


    Trade Your Way To Wealth by Bill Kraft
    Trading is a path to financial independence, personal freedom, and wealth. But the path is immensely challenging and only a few emerge victorious. Bill Kraft's book Trade Your Way to Wealth, an Amazon.com "best seller", shows you the path.


  • SUCCESS TRADING GROUP -- by The Success Trading Team

    52 Wins in 52 Weeks

    Our Success Trading service delivers quality trading ideas for the elite investor that has the financial wherewithal and market nimbleness to profit on small moves in a stock's price. Become a member and you will be provided with email and/or mobile alerts intended to provide you with the opportunity to make many, many profitable trades.

    Chart by StockCharts.com
    Please turn on your ability to receive graphics. We are providing you with a detailed chart of this stock. If you are unable to turn on graphics, please CLICK HERE.


    T (AT&T, Inc.)
    Company Profile
    We like AT&T (Ticker: T) at $25.60 for a new trade position. We have several more stocks on our radar and are looking forward to trading next week.


    Our Success Trading Group has closed 52 Wins in 52 Weeks and over 405 winning trades with a 95% winning track record on our Main Trade Table.
    Details Here.


  • DIVIDEND TRADER -- by The Dividend Trader Team

    Our Dividend Trader service focuses solely on the "best of the best" dividend paying stocks. We trade these stocks for short-term gains and we will also buy these stocks for their powerful dividend producing income with a purpose to make capital gains as the stock increases in value.


    With these trades we attempt to get in and get out quickly. Once we buy, we immediately set an exit point of 3% above the buy price. We have had great success in the past. In fact, we have put together a string of 61 positions in a row that have hit our 3% target subsequent to the buy alert!

    While we titled this service a "trader" service, we also invest in these dividend-paying stocks from time to time for the long-term. We will buy these stocks for their powerful dividend producing income with a purpose to make capital gains as the stock increases in value.

    Many of the stocks that we will be "investing" in have had a history of raising their dividends almost every year. Year after year. This can be powerful. Building up your dividend income in a tax deferred account such as an IRA can significantly boost your account over the years.

    Feel free to sign-up for a free 30-day trial. During such time you can review our Trade Tables and see the type of stocks we are buying. You will also receive in real-time all the new trading and investing alerts we send during your trial period.
    Details Here.



  • COVERED CALL SERVICE -- by the Covered Call Research Team

    Our CoveredCall service has been saving covered call writers 90% of research time and helping writers of covered calls make money since 1997. This is the site for serious covered call writers!

    Chart by StockCharts.com
    Please turn on your ability to receive graphics. We are providing you with a detailed chart of this stock. If you are unable to turn on graphics, please CLICK HERE or on the *Read Our Weekend Report Online* link above.


    MT - Arcelor Mittal is currently trading at $42.48. The April $42.00 Calls (MT20100417C00042000) are trading at $2.25. That provides a return of about 4% if MT is above $42.00 on expiration Friday in April.
    Company Profile


    Learn more about our 8 Covered Call Tables! Updated after every close. Details Here.



  • Success Trading Group Trade the same stocks over and over. 405 trades with 95% winners on our Main Trade Table!

    Trend Trader "The Trend Is Your Friend". Utilize trends and momentum in your stock trading!

    Option Trader Use the power and leverage inherent in option trading to your advantage!

    $10 Trader Focusing on stocks under $10 per share!

    Dividend Trader Perfect for your IRA! Quality dividend paying stocks!

    Covered Calls Conservative option writing -- Allowed in your IRA!



    The foregoing is commentary for informational purposes only. All statements and expressions are the opinions of Online Investment Services, LP. or the associated editor. This information is not meant to be a solicitation or recommendation to buy, sell, or hold securities. Past results do not guarantee future performance. Stock investing is risky. Option trading is risky. Futures trading entails great risk where one can lose more than his account balance. We are not licensed or registered in the securities or futures industries. The information presented herein and on the related web sites is presented "as is" without warranty of any kind either express or implied. Although the information has been obtained or derived from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolios of writers for this issue may, in some instances, include securities mentioned herein and on the related web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors. No one associated herewith receives compensation in any manner from any of the companies that are discussed in this newsletter or on the related websites. By accepting emails, including various paid subscriptions and free email reports and newsletters, you agree to the terms of the MarketFN.com's website Disclaimer, Privacy Policy and Terms of Use provisions as such may be amended from time to time.
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