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Buy Stop & Sell Stop basic question

  • #1
  • First Post: Dec 23, 2006 10:06am Dec 23, 2006 10:06am
I am sorry to ask such a basic question, but I just don't get it. Maybe I should just use it.
Could you please give me a live scenario/example on why you would use a buy stop or sell stop please.
I know the others.
Here is the definition from MT4, and still after reading it, I have no clue.
Thank you for your help.

 

  1. Buy Limit — buy provided the future "ASK" price is equal to the pre-defined value. The current price level is higher than the value of the placed order. Orders of this type are usually placed in anticipation of that the security price, having fallen to a certain level, will increase;
  2. Buy Stop — buy provided the future "ASK" price is equal to the pre-defined value. The current price level is lower than the value of the placed order. Orders of this type are usually placed in anticipation of that the security price, having reached a certain level, will keep on increasing;
  3. Sell Limit — sell provided the future "BID" price is equal to the pre-defined value. The current price level is lower than the value of the placed order. Orders of this type are usually placed in anticipation of that the security price, having increased to a certain level, will fall;
  4. Sell Stop — sell provided the future "BID" price is equal to the pre-defined value. The current price level is higher than the value of the placed order. Orders of this type are usually placed in anticipation of that the security price, having reached a certain level, will keep on falling.

Steve
  • #2
  • Dec 23, 2006 10:25am Dec 23, 2006 10:25am
A breakout from a tight channel or triangle, or a tight straddle on a news event, things like that.
  • #3
  • Dec 23, 2006 11:23am Dec 23, 2006 11:23am
I use all of these orders extensively. The easiest way for me to remember it is If price is below the price I want to buy at I use a Buy Stop to enter. If price is above the price I want to buy at, I use a buy limit.

If the current price is below the price I want to sell at I use a sell limit. If price is above the price I want to sell at I use a sell stop.
  • #4
  • Dec 23, 2006 11:25am Dec 23, 2006 11:25am
Quoting smjones
I use all of these orders extensively. The easiest way for me to remember it is If price is below the price I want to buy at I use a Buy Stop to enter. If price is above the price I want to buy at, I use a buy limit.

If the current price is below the price I want to sell at I use a sell limit. If price is above the price I want to sell at I use a sell stop.
I just chose to memorize this and it works well for me. I do not even think about it anymore.
  • #5
  • Dec 23, 2006 11:26am Dec 23, 2006 11:26am
Quoting smjones
I use all of these orders extensively. The easiest way for me to remember it is If price is below the price I want to buy at I use a Buy Stop to enter. If price is above the price I want to buy at, I use a buy limit.

If the current price is below the price I want to sell at I use a sell limit. If price is above the price I want to sell at I use a sell stop.
Thank you Scott & CEO, I apreciate it.
Steve
  • #6
  • Dec 23, 2006 11:30am Dec 23, 2006 11:30am
Quoting PipSteve
I am sorry to ask such a basic question, but I just don't get it. Maybe I should just use it.
Could you please give me a live scenario/example on why you would use a buy stop or sell stop please.
I know the others.
Here is the definition from MT4, and still after reading it, I have no clue.
Thank you for your help.

 

  1. Buy Limit — buy provided the future "ASK" price is equal to the pre-defined value. The current price level is higher than the value of the placed order. Orders of this type are usually placed in anticipation of that the security price, having fallen to a certain level, will increase;
  2. Buy Stop — buy provided the future "ASK" price is equal to the pre-defined value. The current price level is lower than the value of the placed order. Orders of this type are usually placed in anticipation of that the security price, having reached a certain level, will keep on increasing;
  3. Sell Limit — sell provided the future "BID" price is equal to the pre-defined value. The current price level is lower than the value of the placed order. Orders of this type are usually placed in anticipation of that the security price, having increased to a certain level, will fall;
  4. Sell Stop — sell provided the future "BID" price is equal to the pre-defined value. The current price level is higher than the value of the placed order. Orders of this type are usually placed in anticipation of that the security price, having reached a certain level, will keep on falling.

Here is an example:
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Stubbornly persistent
  • #7
  • Dec 23, 2006 11:31am Dec 23, 2006 11:31am
Buy Limit — I want to be Long this Market but I think I can get in at a better price than where the Market is right now. So... The Max I am willing to pay is eg. 25 pips BELOW the Current Price. If the Maket Falls 25 pips BELOW the Current Price, Get me in on a Buy Limit.
buy provided the future "ASK" price is equal to the pre-defined value. The current price level is higher than the value of the placed order. Orders of this type are usually placed in anticipation of that the security price, having fallen to a certain level, will increase;

Buy Stop — Price Resistance is eg. 25 Pips above Current Price but If that Resistance is Broken then I want to be Long this Market. So... If the Maket Rises 30 pips ABOVE the Current Price, Get me in on a Buy Stop.
buy provided the future "ASK" price is equal to the pre-defined value. The current price level is lower than the value of the placed order. Orders of this type are usually placed in anticipation of that the security price, having reached a certain level, will keep on increasing;
  • #8
  • Dec 23, 2006 11:48am Dec 23, 2006 11:48am
Thank you everybody for all those examples.
Somehow I do not see the difference.
Is the outcome not the same either way? Can I not enter a limit order 25 pips from now if I think the market will continue?
My thinking:

Example 1)
Price is at 1.9500, I think it will continue up, so I enter a limit order at 1.9525 that will be executed at that price, right?
And the Buy stop does the same?

Example 2)
Price is at 1.9500 and I think it will go up, but right now it is going down, so I enter a limit order at 1.9450 thinking it will bounce up.
Again I am not sure when I would use a buy stop.

I am sorry that I dont get it, I appreciate your patience and help.



Quoting Bemac
Buy Limit — I want to be Long this Market but I think I can get in at a better price than where the Market is right now. So... The Max I am willing to pay is eg. 25 pips BELOW the Current Price. If the Maket Falls 25 pips BELOW the Current Price, Get me in on a Buy Limit.
buy provided the future "ASK" price is equal to the pre-defined value. The current price level is higher than the value of the placed order. Orders of this type are usually placed in anticipation of that the security price, having fallen to a certain level, will increase;

Buy Stop — Price Resistance is eg. 25 Pips above Current Price but If that Resistance is Broken then I want to be Long this Market. So... If the Maket Rises 30 pips ABOVE the Current Price, Get me in on a Buy Stop.
buy provided the future "ASK" price is equal to the pre-defined value. The current price level is lower than the value of the placed order. Orders of this type are usually placed in anticipation of that the security price, having reached a certain level, will keep on increasing;
Steve
  • #9
  • Dec 23, 2006 1:37pm Dec 23, 2006 1:37pm
Quoting PipSteve
Thank you everybody for all those examples.
Somehow I do not see the difference.
Is the outcome not the same either way? Can I not enter a limit order 25 pips from now if I think the market will continue?
My thinking:

Example 1)
Price is at 1.9500, I think it will continue up, so I enter a limit order at 1.9525 that will be executed at that price, right?
And the Buy stop does the same?

Example 2)
Price is at 1.9500 and I think it will go up, but right now it is going down, so I enter a limit order at 1.9450 thinking it will bounce up.
Again I am not sure when I would use a buy stop.

I am sorry that I dont get it, I appreciate your patience and help.
1) A Limit Order is the same as saying to your Borker "Buy @ 1.9525 Or Better." Since the Price is currently @ 1.9500 He will fill you immediately as the Price is Better than you are willing to Pay.
  • #10
  • Dec 23, 2006 1:48pm Dec 23, 2006 1:48pm
Quoting Bemac
1) A Limit Order is the same as saying to your Borker "Buy @ 1.9525 Or Better." Since the Price is currently @ 1.9500 He will fill you immediately as the Price is Better than you are willing to Pay.
Ohhhhhhhhhh, finally, that's what I needed. With a buy stop it would NOT be filled until it actually hits that price.....damn that took me long time! Hahaha, sorry. Thank you very much.
Steve
  • #11
  • Dec 23, 2006 1:52pm Dec 23, 2006 1:52pm
You're welcome.

Glad to help.
  • #12
  • Last Post: Dec 24, 2006 2:34pm Dec 24, 2006 2:34pm
Think of it this way...
The market is currently at 1.9500. The market bid is what the other side of the trade is willing to pay you for what you are selling. You sell your "goods" to the bidder. Conversely you buy those same "goods" from the asker. They "the market" is asking this price for their goods or services and you will pay them the ask to buy. The difference between the bid/ask is the spread.

Now, the spread "zone" is the area where the buyers and sellers are at odds haggeling over the price of the commodity. When you choose to pull the trigger and inter the market, you have options...
1. go market and accept ANY price that you are filled at. This means going long at 1.9500 MARKET, your fill could be me(the other side) ASKING 1.9500, a good deal for you, ASKING 1.9600 and you filled (bad deal) loosing $100.00 immediately, ASKING 1.9700 and filling your order (even worse), etc...
2. the market is 1.9500 and you are not willing to pay any more than -example- 1.9450 for the commodity because you feel the market is asking too much. To offer this trade to the "market" you would say to the broker "buy 1.9450 limit". This means if the market trades down to this price level your offer to trade at this price is live and in the trading arena. It does not mean you will be filled unless you are filled at 1.9450 or better, ie. 1.9450, 1.9449, 1.9448, 1.9447, 1.9400, etc...Get the idea.
3. To the broker; Buy the Pound 1.9525 STOP. This tells the broker that if the price point of 1.9525 is "touched", you are willing to enter the market at ANY price (market). This could mean a fill at ANY level; 1.9525, 1.9524, 1.9526, 1.9600, 1.9500, anywhere the asking trader is priced at. I personally do not trade with entry "stops". However, ALWAYS use STOP LOSS orders when in a trade. It is better to be stopped out then broke, or worse owing your brokerage firm $$.

All my trades are placed with LIMIT orders because, although not guaranteed a fill, in a fast moving market (news events, I'm sleeping, whatever), I'm filled at -or better- my price, or not at all. Better not filled at all than a bad fill like example 3. Call that "slippage".

I like fills within the spread because I'm more quickly proffitable.

This sounds like a lot to digest but think of how long it took to learn left/right, up/down, long/short, put/call, etc. Practice enough and it will be second nature. Promise.

Hope this helps,

dcline
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