Saturday, April 08, 2006

Limit orders

Back in the days when I was a follow of stock charts, I used to believe in stop orders. Like if a stock was trading at 50, I wouldn't buy it until it rose to 52. This on the ground that it had at 52 broken out of a formation and now had upward momentum.

Stop orders didn't work well for me. Often I would get bad fills and then my supposed start of an upward movement would be just a little jump and I'd wind up paying the most anyone had paid for the stock in months.

Now I always use limit orders to initiate a position. A chart is still useful to me to see what kind of price range has been usual in recent weeks. Then I pick a price near the bottom of that range and buy only if it gets down there again. I get much better fills and if a stock shoots up so I gon't get in, well that's the breaks.

I also use limit orders to sell a position. Pick a price a little above where it's been lately and wait. I am usually rewarded with a good price for my shares.