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SELL ORDERS
In the classic golf comedy "Caddyshack," the outrageously wealthy
character played by Rodney Dangerfield gets a call from his
stockbroker in
the middle of the fairway. "I want you to SELL, SELL!" he yells into
the
phone, and then is stopped short. "They're selling? Then BUY, BUY!"
There's a nugget of market wisdom in that loopy dialogue: When
everybody
and his brother is selling, you can often grab a bargain by buying a
stock
as it bottoms out. Conversely, you can make some nifty profits by
selling
a stock when the fervor of buyers is at a peak.
Taking a couple of quick points off the board is a pretty good
strategy,
in our view, during this era in the market. Short-term investing is
the
name of the game. But if you're not a day trader and must have your
nose
to the grindstone at work, you can't closely monitor the action in
your
favorite stock to take advantage of a sudden price spike.
That's when a sell order comes in handy. In the same way that a stop
loss
order protects the investor from downside risk, the sell order gives
the
investor the chance to maximize rewards to the upside.
It's a simple procedure. If you purchase a stock at, say, 20 dollars,
you can immediately attach an order to sell the stock at perhaps 22,
two
points higher. If/when the stock price touches 22, a market order is
triggered, and you pocket two points for a 10% gain.
You can adjust the order, setting it higher or lower at any time via
your
broker or electronically. You can cancel it at any time. You can be
at the
beach or on the golf course when the price hits your target and you
cash
in.
Here's a situation where a sell order is particularly handy: Say your
stock is poised to "gap up" at the open of the session and pop for
several
points because of good news (a new product, upgrade, merger, etc.).
The
problem is that the stock will often "fade" after the opening gap,
reaching a peak in the first half hour of trading and then slowly
sliding
back. A four-point gain at 9:45 a.m. can dribble down to a one-point
gain
or nothing by 10:30.
If you recognize the good news before the open and realize that the
stock
is ready to gap, you can place a sell order a few points above the
previous night's closing price. If the stock closed at 20, you can
place
an order at 22 or 23. At the open, there's a good chance that the
price will hit-or exceed-your sell price, and you'll be safely out of
the
trade when shares begin to fade. If it fades back to an acceptable
level,
you can always reenter the trade.
The risk is that the stock will gap and NOT fade. The price could hit
22,
then 23 and continue through 24 and 25 before slowing down. You might
leave some points on the table. But you've made a nice return on your
investment, and you can still reenter the trade when you are again
comfortable with the price.
Savvy traders try to grab every nickel of a gap open by shifting
their
sell order higher as the stock advances. If the stock gaps to, say,
22 and
continues to move, the trader might place a sell order at 23. As the
price
approaches 23, say 22.75, he might cancel the live order and place
another
at 23.50. If the price heads toward 23.50, he can adjust to 24. This
can
continue until the trader is convinced that he is selling at or near
the
short-term top. All it takes is a few mouse clocks.
Remember, if your sell order is triggered and the stock fades to
below
your sell price, you can reenter the trade at the lower price.
Essentially,
nothing has changed-except you've put some easy money into your
account.
Plenty of traders use this technique while trading the Exchange
Traded
Funds (ETFs) that track the movement of the DOW--the "Diamonds"(DIA)-
and
the NASDAQ-the "Qubes" (QQQ). When the pre-market action in futures
indicates a strong open for either of these indices, a well-placed
buy
order for these ETFs attached to a timely sell order can produce
double-
digit profits in a few minutes.
The technique also works in reverse for short sales in which the
position
gains in value when the underlying stock falls in price. If he senses
a
"gap down," the trader simply places a "buy to cover" order a few
points
BELOW the current price. If the stock drops to his price, a buy order
is
triggered to cover the short for a quick profit.
Sure, some of these tactics are beyond the skill level or interest of
many
investors. But every investor should at least consider using a sell
order
whenever he places a new block of shares into his account.
http://clix.to/wallmann
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