How are stops practically implemented?

[ctp6360]

As someone who has never used a 'stop' before I wondered how you PRACTICALLY implement a stop. As in, do you just submit a SELL order in at the price you wish your stop to be and leave it outstanding, then modify it as you go, or is there actually a function of brokers that allow you to implement a stop based on a formula as some such?

I am sure this is a basic question but I have read quite a few books on trading now and they all seem to assume you know how to actually execute a stop.

 

[Smurf1976]

Some people just do it manually using closing prices. I know of more than one trader that does it this way. Just check the price each day after the market closes and, if it's below your stop, place an order to sell at the open tomorrow.

Obviously if the price really crashes then you are going to cop a fair loss doing it this way but provided that you keep your position size reasonable it does seem to work for many. The occasional big loss is offset by the benefits of (often) selling on a bounce after the stop has triggered. Also, many trading methods simply work on closing prices.

If you want to use intraday stops (selling automatically when the market is open) then firstly you need to be using a broker that offers stop loss orders. Not all brokers do.

Assuming that you are using an online broker which offers stop loss orders:

1. You could place an order that simply triggers if that price is reached. For example, sell 10,000 XZY shares at $1.22. If that price is reached then your order goes into the market. There is, however, no guarantee that you will sell at the price you place your stop at. If the price is falling hard then you could easily end up selling at, for example, $1.19. The risk here is yours.

2. Some brokers such as DataTech (there may be others) offer more complex services. You can incorporate a volume limit such as "stop $1.22 only if volume traded below that price is greater than 100,000 shares". This can protect against temporary downward spikes caused by single orders which often happens with some stocks (even big names like CTX).

DataTech will also accept standing instructions such as, for example, "Ignore stops during the first 30 minutes or trading"", "Sell just before the close" or for that matter anything else (within reason) that you wish to specify. They won't do calculations for you though apart from implementing your request for a stop at, say, 95% of the closing price.

Some brokers also offer a "start gain" facility. It's like a stop loss but in reverse. You BUY the stock if the price RISES above a level that you set. Depending on your trading method this could be either very useful or totally useless.

Charges for stop loss / start gain orders are generally a little higher than normal brokerage BUT you should only have to pay if the order is actually triggered. Orders through DataTech are $60.50, not sure about others.

I am not associated with DataTech (other than as a client) despite having mentioned them a few times here.

 

[ctp6360]

Wow Smurf, thankyou SO MUCH for your reply! I certainly wasn't expecting such an informative reply - you have answered my question perfectly!

I think the end-of-day method will work for me initially and it makes sense to do it this way. I see how this method will take the most self-dicipline but dicipline is something I need to practice at the start.

I will definitely look at DataTech though, it sounds a bit complex for a newbie like me but certainly those features sounds like they will be helpful as I get more serious.

Thanks again Smurf, I really appreciate your knowledge and the time you have taken to reply to me.

 

[ob1kenobi]

If you want to use intraday stops (selling automatically when the market is open) then firstly you need to be using a broker that offers stop loss orders. Not all brokers do.

Assuming that you are using an online broker which offers stop loss orders:

1. You could place an order that simply triggers if that price is reached. For example, sell 10,000 XZY shares at $1.22. If that price is reached then your order goes into the market. There is, however, no guarantee that you will sell at the price you place your stop at. If the price is falling hard then you could easily end up selling at, for example, $1.19. The risk here is yours.



2. Some brokers such as DataTech (there may be others) offer more complex services.

The following is from the ETrade site. Very informative and provides an alternative. Like Smurf, I have no association with ETrade other than being a client. Best of luck.

Conditional Orders Centre
E*TRADE’s latest product release is Conditional Orders. The Conditional Orders Centre will offer an overview of the product for new customers, as well as details on latest product developments, training and seminars for existing customers.

What are Conditional Orders?
The Different Types of Conditional Orders
Advantages of Using Conditional Orders
How to place a Conditional Order
Pricing of Conditional Orders





What are Conditional Orders?
A conditional order instructs us to monitor a particular stock on your behalf and should the share price reach your predefined target, we will immediately send your order to the market*.

There are two components of a Conditional Order. The first is your order to buy or sell a particular stock. The second component is the predefined conditions that you set. These conditions include the price the stock must reach and the volume of stock traded at that price. We will continually monitor the market for these conditions and as soon as they are met your order will be triggered and sent to the market*.

Using Conditional Orders can also help you develop a trading plan or strategy, and automatically stick to it. You no longer have to keep a close eye on the market to know when to place your orders. You simply set the conditions you want the stocks to reach to trigger an order, and leave the rest up to us.

Throughout the process of when a Conditional Order triggers and an Order is placed to market*, you will be kept informed of what is happening with your order through email and/or SMS messaging. Once an order executes another message will be sent to you by email and/or SMS, to provide you an update wherever you are.

There are a variety of Conditional Order types you can use ranging from simple price and volume conditions through to advanced price tracking and straddle orders. Each type of order has been developed to suit different kinds of trading styles and investor needs. E*TRADE is the only online broker that offers you a range of innovative conditions including trailing triggers, market open and close delays and straddle orders that allow you the power and flexibility to implement your trading strategies.

* All orders are subject to E*TRADE’s standard vetting processes before they are placed on the market. E*TRADE does not guarantee that your order will execute.



The Different Types of Conditional Orders
E*TRADE has three levels of Conditional Orders you can use.

1. Basic
   • Price and Volume. You simply select what trigger price you want the stock to reach for us to send you order to the market. You can also ask us to ensure there is a certain volume of the stock is traded at your trigger price to ensure that your order is not triggered without sufficient momentum in the price change. See Example
2. Intermediate
   
   • Price and Volume with Delay. Similar to the Price and Volume Order but also includes the additional options of setting a delay after market open or before market close. If your conditions are met in the delay periods your Conditional will be held and not activated. See Example
   • Trailing Sell. Features a trigger price that recalculates at the end of each day and is designed to follow the share price as it moves in an upward direction. By only moving your trigger price upward, if the stock price rises, this conditional order gives you greater control than the basic order and means you do not have to constantly adjust your trigger price as the market conditions change. The Trailing Stop version helps you lock in profits automatically and is far more powerful than the basic, static trigger price. See Example.
   • Trailing Buy. Also features a trigger price that recalculates at the end of each day and allows you to select when to buy shares based on when the stock price is moving in a downward direction or rising upward. See Example
3. Advanced
   
   • Straddle Sell. Combines two conditional sell orders so you can set both a Profit Target and a Trailing Stop to sell your existing stock holdings. It is used to help protect your capital and potentially enables you to lock in profits. We monitor the market for you and place your sell order to the market if the stock price falls or rises to your target levels. Only one of these orders will ever trigger. See Example.
   • Buy then Sell. The complete Conditional order tool – featuring a combination of a Buy and two Sell Conditional Orders. You set the criteria of when you would like to Buy the stock, then set two Sell orders including both a Profit Target and Trailing Stop for your holdings. This order includes price/trailing price, volume and delay after market open options. If the Buy order has executed only one Sell Conditional Order may trigger and be placed to market, depending upon which direction the stock subsequently heads. See Example.

Advantages of Using Conditional Orders

• Helps develop trading strategies. Conditional Orders enable you to develop a trading plan and follow the plan. The pre-set Conditional Orders will help manage your strategy. Conditional Orders can be set for active traders to help manage intra-day trading, (as well as selling orders) and for long-term investors to help set strategies for their current stock holdings.
• Helps maintain discipline. One of the most common complaints investors give about trading is the lack of discipline resulting from not sticking to a trading plan. Some investors develop emotional attachments to their holdings and do not sell them at the optimal time. Using Conditional Orders reduces this issue by automatically placing your order to market when your selected conditions occur. .
• You do not have to watch the market constantly. You no longer have to be glued to your PC screen all day to keep tabs on the market. You set the prices and conditions you want to buy or sell the stock, and when these happen E*TRADE will vet then place the order to market for you.
• Conditional Orders can be modified at any time. Open Conditional Orders can be viewed, modified and cancelled whenever you require. As the market changes, you can easily adjust your Conditional Orders to take account of these changes. Conditional Orders stay active for 3 months, at which point you can update them if required, or update their details in line with the changing market conditions.

How to place a Conditional Order

1. Go to the Trading Tab.
2. Click on the Set Order link, located under Conditional Orders on the side menu.
3. Select which of the six types of Conditional Orders you would like to use and click the Continue button.
4. Enter the type of Conditional Order you wish to set, the stock code, how many shares, and your method of notification (by email or SMS) to be informed of triggered Conditional Orders. Some order types will also offer on this screen the option of Delay after Market Open/Market Close. Once you have entered all the details, click the Continue button.
5. Select what price conditions you would like to set, including limits and volume options. Enter your Trading Password and click on Continue. Depending on the type of order set, you may have some other screens requiring further selection of price conditions, limits and volume levels. If you have selected a Buy then Sell Conditional Order, you will be required to enter up to three orders – one buy order and two sell.
6. The final screen is the Preview Order screen. Check the details and read the content of what will happen if the selected Conditional Order criteria/Conditions are triggered. If you agree and want to place the order, hit the Place Conditional Order button.
7. To view your Order, click on the Edit/View Orders on the side menu under the Trading Tab.

Pricing of Conditional Orders
We charge a small premium on top of our standard brokerage rates for Conditional Orders to cover the cost of monitoring the market and implementing your orders as soon as your conditions are met. This premium, as with our standard brokerage, is only charged if your order executes. The premium is:

• Basic Orders - $7.95 (incl GST). This allows you to set the price, upper/lower limit and cumulative volume.
• Intermediate Orders - $19.95 (incl GST). The intermediate orders include the additional features of trailing price measurement and delay after market open/halt before market close.
• Advanced Orders (Straddle Sell) - $19.95 (incl GST). The straddle order includes all the options listed above plus the ability to set two sell Conditional Orders – one as a profit target and the other as a Trailing Stop.
• Advanced Orders (Buy Then Sell) - Depending upon what kind of Buy orders you set, you will pay $7.95 or $19.95 for an executed Buy order, and $19.95 for an executed Sell Order. If the Buy order executes but neither of the Straddle Sell orders execute, you will not be charged for the Sell orders.

see www.etradeaustralia.com.au or follow the link from www.anz.com

 

[ctp6360]

Thanks ob1kenobi! This is exactly what I was after.

I like the idea of having a trailing stop loss automatically implemented for me so I don't have to be constantly monitoring the prices, I think it will also be of great benefit starting out to be 'automatically' diciplined by setting the full terms of my plan into the computer at the very beginning.

The $20 premium to do this will be an issue when I am dealing with smaller, $6000, transactions but I think that the benefits they provide outweigh the cost by far.

I'm still doing a LOT of reading while I get started. I've read SHARE TRADING by Daryl Guppy and I'm half way through TREND TRADING by Guppy too. I'm looking forward to researching some actual stocks on the weekend when I get some time, I'm fortunate enough to have a chunk of spare cash that I don't need for living or anything so I can test the water without risking my livelihood!

Thanks again!

 

[tech/a]

Just a thought.

If you trade longer term rather than short term---stop placement and implementation is rarely a problem as things move at a slower pace.

Learn to drive the Morris Minor before hopping in the F1 that way youll probably have less chance of crashing and burning.

 

[RichKid]

I'm fortunate enough to have a chunk of spare cash that I don't need for living or anything so I can test the water without risking my livelihood!
Thanks again!

Even if it's spare cash and you can afford to lost it all (which is good in terms of your general wellbeing) you should guard your capital jealously, even if it is to test the water, that way you will be trading with more focus. And remember to bet small etc if you are just testing things out. Hope you do well.

 

[ctp6360]

Oh yes RichKid I have no intention of being silly with my money, its still a lot of money to me! I just wanted to emphasise that I wasn't putting myself in a situation where emotions will overrun me. Risk management and capital protection will be my top priority!

Thanks for the advice

 

[ob1kenobi]

Thanks ob1kenobi! This is exactly what I was after.

I like the idea of having a trailing stop loss automatically implemented for me so I don't have to be constantly monitoring the prices, I think it will also be of great benefit starting out to be 'automatically' diciplined by setting the full terms of my plan into the computer at the very beginning.

The $20 premium to do this will be an issue when I am dealing with smaller, $6000, transactions but I think that the benefits they provide outweigh the cost by far.

I'm still doing a LOT of reading while I get started. I've read SHARE TRADING by Daryl Guppy and I'm half way through TREND TRADING by Guppy too. I'm looking forward to researching some actual stocks on the weekend when I get some time, I'm fortunate enough to have a chunk of spare cash that I don't need for living or anything so I can test the water without risking my livelihood!

Thanks again!

Not a problem. I think what Tech/A and RichKid have just said is worth noting. The problem with automatic orders (conditional orders) is that they can be triggered when you might not normally have triggered a sale yourself. For example, if you set a percentage decrease, say 5% as a trigger for sale and it momentarilly reaches that point before a rally or picking up again, you might have made a loss, when patience might have made a profit. Be careful!

 

[ctp6360]

Yes I just re-read this thread and noted that I actually missed the smartest comment of all, that if I'm trading for a longer term actually executing the stop loss won't be an issue at all because there will be plenty of time to do it.

I am starting to see that as the better way to go anyway because it requires dicipline, and, as you say obe1kenobi it will prevent getting caught in a situation where there is one low trade and I get wiped out when I shouldn't have been!

 

[Wysiwyg]

Stop techniques. In depth and only if dedicated to learning about stops.