Fly Fishing the Stock Market: How to Search for, Catch, and Net the Market's Best Trades

UNDERSTANDING ENTRY ORDERS

With the candidate list selected, it is time to plan an execution, beginning with the entry. More and more traders turn to Internet firms for placing orders. When your orders go straight from your computer to the market, it becomes essential to know the various types of orders. You can do a lot better than using simple market orders. A plain market order instructs the brokerage to buy or sell at the current price, whatever it may be. Obviously, in a fast-moving, liquid market, this order may make sense. Even so, it exposes you to a very high risk of slippage.

Limit Orders

If you want to buy or sell at a fixed price, use a limit order. These orders let you control the price of your transaction. It means more work for a brokerage, and some charge higher commissions for these orders.

Stop Orders

Stop orders protect your position against a sudden adverse move. Think of it as a trigger at a designated price level that activates a market order to exit a trade gone bad.

For example, if long, you would enter a stop-loss order somewhere below the current market price. If and when the price drops to that point, your stop-loss order becomes a market order to exit the position immediately at the current price. Consider these orders a safety net or insurance that protects against an unexpected drop.

While most new traders are familiar with protective stop-loss orders, they are less familiar with stop-buy orders. If you want to buy a stock on an upside breakout at ...