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Bob....
Al's answer to your inquiry regarding a stop limit order is correct except for
one little error in semantics. Once the stop is elected in his example, it is
not a market order to sell at 9 1/2 or higher. It is a limit order to sell at
9 1/2. A stop limit order is the least effective of stop orders because of
the price limit set. A stock can very easily trade below the limit and
therefore, no execution is received. If my memory serves me correctly the ASE
will only accept stop limit orders. I do not recommend their use.
Now for a regular stop order. Let us say you enter a sell stop at 25 gtc.
That means, when the stock trades at 25 or lower (I claim in the primary
market place, if you have been following recent posts) the stop is elected and
you then have a market order to sell. Say again the stock closes at 28 today.
After the close crappy earnings are announced and Friday the stock opens at
10. The trade following that 10 openning is your market order to sell. Not
very good protection, is it? What is worse, if the stock opens at 10 for one
trade and is then suspended for trading, you are not yet executed. Hell, if
the stock is at 28 and suspended for trading, your stop loss is not very
protective. Now you see why I am not a big fan of stop loss orders.
A better but more expensive way to protect yourself might be to buy puts at
the same time you purchase the stock. But then, not every stock traded has
puts available. I don't know what else to tell you. It probably won't make
you feel better, but twice in the past year I have had a stock open down in
excess of 50%. Diversification numbed the pain somewhat. The point I make
is, always be diversified.....because a stop loss may give you protection, but
no guarantees.
Jerry
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