Posted by Larry We certainly hope you replied "We take the stop off before the open, since it would have then become a market order and fired off at the prevailing price" Suppose we buy XYZ at $15 and it ends the day at $15.50. Well that isn't a lot of room to play with, so we realize if the stock goes against us the next day, we may have to get out flat or in other words, right where we bought it. So let's say we put in a stop at $15. Okay, now the next morning the futures are in the toilet and sure enough, XYZ opens at $14.75 If you left your stop on, it would have become a "sell at the market" order and when your number came up, you would get sold at that price (or lower depending on the games the market makers are playing that day!) So what is the "right thing to do?" Well as you know nothing works perfectly every time, but here is what we like to do in this instance. We call the broker, (or do it online) and remove the stop before the open. Then we simply watch the stock. If it only falls a bit and holds the day, we can hope for a rebound the next day that may get us back out flat on the trade. But, if it keeps falling or the next day it is down yet again, chances are it may be better to pull the plug and get out with a small loss, before it turns into something nasty. Will this get you out flat every time? No, not at all. But, more times than not, it will and that is important. If you get "market order sold" you have no chance of recouping, but we have seen many times when a good stock gets taken down on the morning's gap down, and yet two hours later it is higher than it opened at. If you wish to exit the stock, looking for that initial rebound is often the difference between losing half a point or getting out flat or even with a profit. So, if you have owned the stock for a while and have a decent profit built into it, you may not care about getting market ordered out on a gap down. But, if you just recently purchased the stock and don't have a lot of "room" for it to fall before you are in negative territory, taking the stop off before the opening bell is the best chance you have of getting even. A general market pattern on a gap down is the open pulls us down, but then it flattens out and the initial bargain hunting scalpers come in. Often that first rebound is enough to get you back out okay, but what if that one doesn't make it, do you hold? Tough call, but again, it depends on how far it has actually fallen. We hate getting stopped out with a dollar's loss, and then the next day it is right back up. There is no really great "rule" to follow on a situation like that. We simply like to attach a number that we are comfortable with and go with it. Taking the stop off won't save you every time. But it will save you 100% more than if you don't take them off (because if you don't, you are going to get sold out for the loss every time). If you find yourself in that situation, take the stop off (remember to do it before the bell) and then assess if you want to try and get out on a bounce, or simply monitor it so it doesn't fall "too" far. You may end up pulling the plug anyway with a small loss, but our experience shows that often you can either get out even or at least get out with less loss than if it sold at the morning's lows, and you know that is exactly where market makers would sell you! Give this strategy a lot of thought, it will save you money. http://clix.to/wallmann
Link: Free Trading Tips & Plays
on 2/7/2003, 4:27 pm
152.163.205.48
"What do you do with a stop order if we gap open lower and your stock is below the stop?"
When you place a stop limit order on a stock, basically you are saying "get me out of this thing when it falls to "X" dollars per share." You see us talk about them all the time. We use them to follow a stock "up" such as if we bought ABC at 50 and it goes to 55, we adjust our stop up to say 53.75. That way if it reverses on us, we get stopped out and we still made money. But, remember the hardest thing to do is time your entry correctly right? Right. So with that thinking, let's look at this example.
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