Success Trading: Yet More Basic Terminology for New TradersWritten by Chuck Cox
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Buy Stop – The description above pertains to a “sell stop”, but there are also “buy stops” that can be very useful. These are used to enter a position at a certain point. Suppose you’re using a trading system requires that you buy when a stock breaks above a certain price level. Let’s say that you are waiting for IBM to break out of a channel and to do so, it would need to reach $51. In this case, you simply place a buy stop at $51 for number of shares you desire and your online broker’s system will buy that for you automatically whenever IBM hits $51. The only thing you would have to do and check back occasionally to see if order has been filled. These two tools, sell stop and buy stop are invaluable to traders – especially those who are just starting out. Make this a habit from day one in your trading – ALWAYS place a stop loss immediately after getting an order filled. Obey this rule and market will never hurt you very badly – you’ll take a hard sting every now and then, but you’ll stay alive to come back another day!
Chuck Cox is a Technical Writer and Industrial Scientist by professional with a background in statistics. He has used mathematical and statistical methods to invest and trade in the stock, futures, and options markets. Chuck has owned various businesses and presently operates several websites. To learn more about trading the markets, visit his website, http://www.earncashathometoday.com/trading-stocks.htm
| | Success Trading: Some Basic Terminology for New TradersWritten by Chuck Cox
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or take a “short position”. A short position is closed out by buying those shares back or “covering” your position. This concept is very confusing to new traders because you’re selling something that you don’t even own. The thing is that you’re still trying to buy low and sell high, you’re just selling high first and buying low later. Think of it this way – you go to a car dealer and order a new car, he charges you $20k and then looks to purchase it for a lower price. That dealer has taken a “short position” on transaction between you and him. We don’t recommend new traders to take short positions until they learn more about market.One thing to keep in mind about short and long positions is that they’re totally different in nature. There are by far more traders out there taking long positions than those taking short ones. Human nature tells us that we buy with expectation of rising prices. The concept of wanting prices to drop is against human nature and therefore short positions can be more erratic as a result.
Chuck Cox is a Technical Writer and Industrial Scientist by professional with a background in statistics. He has used mathematical and statistical methods to invest and trade in the stock, futures, and options markets. Chuck has owned various businesses and presently operates several websites. To learn more about trading the markets, visit his website, http://www.earncashathometoday.com/trading-stocks.htm
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