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A smart investor always has an exit strategy when investing in the stock market. Daytraders are successful because they have exit strategies for all their stock purchases everyday. I learned the hard way by not having such exit strategies in any of my stock purchases. Even when the stocks went up and I was jumping up and down with joy, I eventually ended up losing all of the profits and then some more. I had good initial entrance strategy, but I failed to implement a good exit strategy to lock in those gains. I foolishly believed that the stock price would continue going up forever! I learned that it’s all paper money until I cash out. It doesn’t matter if I’m up 1000000% at one point in time. I need to be up 1000000% when I sell and cash out.
All of the online trading platforms offer the similar ways to trade stocks. They are available so we can make better decisions for every trade we make. They are there to help us maximize our profits and minimize our losses, but it’s our job to know how to use them. Below are 5 ways you can make a trade. Allow me to go over each one so we can better understand how they work.
Limit
When you want to buy a stock, you can use Limit Order to help you make that purchase at the price you want to pay. It’s kind of like naming your own price when making a purchase. You set the price you want to buy at and when it reaches or falls below that price, it activates automatically and a purchase is made. It’s a good way to control your buy-in price targets. However, if you set the price too low, it may never reach that price because the stock is increasing. In this case, you may be just out of luck. Either you have to look into another stock or buy this one at a higher price.
The same rules apply when selling the stock. It’s a way to implement an exit strategy when you’re already in the profitable region. You can enter a price you want to sell at, even if the stock price hasn’t reached that point yet. Imagine a stock price sitting at $135 currently. Your exit strategy is to sell at $140. In order to do that, enter a limit sell order at $140. When it reaches $140, it will sell automatically. However, if it never reaches that price target, the order will never get filled.
Market
Market orders are same as Limit Orders except you do not have the opportunity to set your own price. Whatever the current price is for the stock, that’s the price you will end up paying. Market orders are dangerous for volatile stocks because the price can fluctuate drastically even in seconds. So when you think you’re making a purchase at the current price, the final price may be a more or less due to time lag between transactions and real-time price of the stock.
Stop Limit
My favorite is Stop Limit Order. A stop-limit order is an order to buy or sell a stock that combines the features of a stop order and a limit order. Once the stop price is reached, the stop limit order becomes a limit order to buy or to sell at a specified price. The benefit of a stop-limit order is that you can control the price at which the trade will get executed. It’s a way to lock-in your profits as the stock price increases. One thing that’s very hard for any investor to do is to sell when the price has an upward momentum. Optimally, it would be best to sell when that upward momentum is lost and the price starts going down. So with Stop Limit, you can set your own price at a lower price that still locks in your profits. Even when you enter your stop limit order, as long as your stock continues to go up, your order will never be filled and you can enjoy the upward momentum. You can then re-evaluate your stop limit price and enter a new price that locks in your profits even greater.
Trailing Stop
Trailing Stop is very similar to Stop Limit order except that the target or activation price moves along with the current market price. Let’s say you placed a stop limit order at $125 for stock that is currently trading at $135. So, in this case, as long as the price doesn’t go below $125, your order will never be filled. You can still enjoy the upward momentum of your stock. However, if you had placed a trailing stop order, the activation price of $125 will move along with the current market price. If the difference is $10 from activation and market prices, it will remain $10 as long as the price goes up. The moment the price starts going down, the activation price will be locked at its peak price. So, if the market price had gone up to $145, the new activation price will be $135. Remember that the activation price only goes up with the market price and never goes down. This is to help you maximize your profits and limiting the risk of a falling stock price.
Always Have An Exit Strategy For Every Trade
For every trade, you should always have an exit strategy. Whether it’s to lock in your profits or limiting your losses, you want to be able to control your investments. Don’t let the investments control the way you make your trades. I learned the hard way a few years back. Learn from my mistakes and develop your exit strategies for your current investments right now.
Trading Platforms
There are so many affordable trading platforms out there. Currently, TradeKing is offering $50 cash bonus for new customers if you sign up in August. Their trade fee is only $4.95 per trade. Also check out these other competitive trading platforms:
- Scottrade ($7.95)
- OptionsHouse ($2.95)
- OptionsXpress ($14.95)
- Trade Monster ($7.50)
- eTrade ($9.99)
- Zecco ($4.95)
- TradeKing ($4.95)
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I had been watching Goldman Sachs (GS) for several months and I wanted to take this opportunity to give my take on what will happen to GS in the next month or two. I knew back in June about a strong support at $130 and sure enough, GS bounced from this support level and started the rally. Now it is trading near $155 but is having some difficulty breaking above $158 level. There are two indications converging at $158, which is making a case for a strong resistance. The first one is the 200 day simple moving average which is converging at $158. The second is the 50% Fibonacci retracement level at $158 (using $130 and $186 at 0% and 100% respectively). If GS is to break this resistance, then I expect continue upward movement towards $165. However in my opinion, it is more likely for GS to start a declining trend at the dual resistance price level. Investors should keep a close watch on these support and resistance levels for GS as the stock market continues to be volatile.
Guest Post: Michelle is a beginner blogger who loves talking and writing about investing. You can read more of her work at Invest Long and Short. Currently, you can receive a $50 bonus when you open up a TradeKing account. This post is for entertainment purposes only and does not constitute any professional advice. Please refer to my Privacy Policy for more information.
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All you need to do is fund your account with $2,500 within 30 days of opening your new TradeKing account and make a real trade within 180 days. Then you get $50 funded to your account. You do however, must maintain at least a $2,500 minimum balance in your new TradeKing account for 6 months. TradeKing boasts one of the most affordable trade commission fees with only $4.95/trade. It does not matter how many shares you buy or sell. It’s flat $4.95 with no other hidden fees or costs. If you prefer options trading, it’s only 65 cents per contract.
This promotion is good for August only.
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Right now, EZtrader is offering a deposit bonus of $85 when you deposit $500 and $600 bonus when you deposit $2000. Starting in August, the bonus increases to $100 for $500 deposit, $875 for $2,500 deposit, and $1,800 bonus for $4,000 deposit. To take advantage of this offer, you can sign up for EZtrader.com here. Simply deposit using your credit card and the bonus will be reflected in your account the following business day. Once the bonus is received, you need to trade at least 3x the total value of your deposit + bonus for the bonus to be cleared for withdrawal. So, if you deposited $500 and received $100 bonus, you need to make $1,800 worth of trades for the bonus to be cleared. There is no expiration date.
How To Trade Binary Options
I tried EZtrader and I like it. The process is very simple. EZtrader offers a list of common stocks that users can purchase options. You can either purchase a PUT option or a CALL option. If you purchase a PUT option, you’re hoping that the stock price will go down below the strike price that was agreed upon before the transaction. If you purchase a CALL option, you’re hoping the stock price will go up above the strike price that was agreed upon. The options expire at the end of the hour. The image below shows a few of about 10 stocks EZtrader allows you to participate in. You can also trade in Indices, Currencies, Commodities, EU Markets, and others.
Some stocks have higher payout rate than others. The higher payout stocks are less volatile so it becomes more difficult to predict how the stock will behave during the next hour. All that’s needed to be done is select the stock you are interested in, click the green CALL button if you think the price will go up by the end of the hour, or click the red PUT button if you think the price will go down by the end of the hour. So, let’s say you placed a $100 CALL option on JPMorgan Chase at $40.283, as the image above shows. If at 2pm when the option expires, if the price is above $40.283, you earn 65% or $65 on your money. A total of $165 will be funded to your account. If the price went down below the strike price of $40.283, then you receive 5% of your original investment, or $5. If this happens, you lose $95. The most you can purchase in one transaction is $1,500. The minimum is $30.
Deposit and Withdraw Methods
EZtrader only allows deposit methods using a credit card. Mastercard, Visa, or American Express will work. There is no charge for this transaction and your credit card company will not charge you a Cash Advance fee. To make a withdraw, EZtrader automatically funds back to your credit card used for the deposit, up to the deposit amount. The remaining amount must be withdrawn using bank wire and it costs $25 for each transaction. So, if I made a deposit of $500 and I made a profit of $1,000 and want to make a full withdraw of $1,500, $500 will be funded back to my original credit card, and $1,000 will have to be withdrawn using a bank wire process. EZtrader does not charge any other fees associated with your account.
Customer Service
Customer service is actually pretty good. As soon as you sign up, a real live person will give you a call to make sure all your questions have been answered. There is also a live chat feature that can get the answers to your questions quick. If you have any questions or concerns, you should have no problems in getting the answers right away.
Real Time Stock Prices
EZtrader does not provide any analytical resources to help you with your trades. All they provide is the real time stock prices. I suggest using eTrade, Scottrade, or TradeKing to help you look at charts and graphs in real time. All of these stock brokers have trading platforms that are integrated with real time charts and graphs that will definitely help you make better decisions when it comes to binary options. By looking at these charts and graphs, along with Ask and Bid prices, you will be able to predict the behavior of the stock’s momentum more accurately.
So, go ahead and give it a shot. Try a practice trade first before you deposit and see if you come out on top.
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Previously, I wrote about how it’s very hard to trade stocks by buying low and selling high. Instead, I suggested buying a particular stock high and selling it even higher, like baseball phenom Stephen Strasburg’s Rookie Card. The reason for this is it’s very hard to find the bottom of a stock and you don’t want to play the guessing game when the stock price is falling, trying to pick the bottom. It just becomes too risky. But when the stock price is on the rise, it’s easier to ride the momentum and make a few dollars off of it.
One particular stock I’ve been keeping my own is BP. Since the oil spill, BP’s stock price has plummeted from $62 in March to only $26 in July. Today, the price recovered a bit to $37/share. If you were fortunate enough to pick the bottom at $26 couple weeks ago, then you got lucky. But it would’ve been impossible to know that $26 was the bottom. As the price was declining from $62, some people probably bought at $50 or even $40 thinking that would be the bottom. It’s like trying to catch a falling knife. I suggest you avoid it.
But now that the price has picked up momentum and has been increasing in price for the past two weeks, the current price still looks very appetizing. $37 is not $26, but it’s still much lower than $62 it once was a few months ago. So, consider buying this stock at the higher price of $37 today and sell it for even higher price for a good profit. Remember to set your limits to minimize risk.To start trading, offers one of the lowest trade commission fees at only $4.95.
Alternatively, there are plenty of other online brokerage firms to choose from.
Scottrade ($7/trade)
Options House ($2.95/trade + 100 free trades with promo code FREE100)
eTrade ($9.99/trade + free trades for 60 days)
Refer to my online stock brokers review for additional information.
In other news, check out Funny About Money’s latest carnival. Money Green Life was mentioned there.
