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Tuesday, 14 March 2017

Price Triggered Orders - To temperament with love



People like to invent new names.

SGX call them Price Triggered Orders, some brokers call them Conditional or Contingency Orders, while traders just call them Stop Orders.

A Stop Order is just an instruction to automatically trigger a Market or Limit Order when a pre-determined price level has been hit. (Stop reading if you don't know what is a market or limit order)



1)  It can be used as money management tool to limit our losses:

Bought stock ABC at $1.00; set a Stop Order to sell if  and when the price drops to $0.90 - that's if a 10% loss is the most you can stomach.



2)  Or it can be used to protect our profits:

Bought stock ABC at $1.00. Price now is $1.50. You set a Stop Order to sell when the price retraces back to $1.30. 



3)  Less well known to retail "investors" is that Stop Orders can be used to initiate new positions to trade break-outs or for momentum plays.

Price of stock ABC has been ranging from $1.00 to $1.20.

If you are long, you set a Stop Order to buy when the price breaks above $1.25.

If you are short, you set a Stop Order to sell when the price crashes below $0.95.


I know, its quite counter-intuitive if you new to trading or only know about Value plays. Why buy at $1.25 when we can buy at $1.20 and below???

Don't ask me. You go ask your broker or your trading guru lah!



4)  Go fishing.  Once you have setup your orders in the morning, you can go drink kopi and don't have to stare at screens if you not intraday trader. You're either stopped-out with a loss, made money, or the trades get unfilled when you check in the evening.  


Of course there are more advanced order types like One Cancel Other (OCO), If Done, Iceberg, and other variations. They are not difficult to understand if you understand the basics of Stop Orders first.

However, the question to ask is why are you bothering with them if you are not a hard core trader?

Keep things simple.



The Mind or Mental Part is the killer

OK, that's the mechanics. Its the easy part.

If you are struggling with the mechanics, you may want to pause and take a hard look at yourself in the mirror and ask whether you are cut out to be a trader.

Remember, no shame.

Most retail "investors" are failed traders.

You have the company of the herd. You are the majority. You are legion.


Ready? Here's comes the hard part.

Stop Orders are double-edged swords.

What usually happens for point 1 and 2 is that once your stops have been triggered, stock ABC will zoom all the way to $2.00!!!

OK, point 2 not so bad; make less better than point 1. Ouch!


As for the scenario under point 3, what happens? Studies have shown that 70% of breakouts end in failure. Yup, got tricked by false breakouts...

You think so easy enter orders in the morning and passive passive make money when you return in the evening?


Why the mental part is the killer? (Tipping my hat to coconut)

Imagine being stopped-out at a loss under point 1 at $0.90.

Next day the stock has a strong reversal day and now price has soared back and just broke $1.10.

What do you do?

Stare at screen and curse your "bad luck" or "blame" whoever introduced you to Stop Orders?

Do you have the mental strength to jump right back into a trade you've have just exited at a loss, and re-enter at a worse off entry price than before?

Now that's the rubber hits the road moment when you discover whether you have what it takes to be a trader!!!

Don't look at me!

I just suck thumb and crawl into my foetal position when it happens to me....





50 comments:

  1. temperament,

    I'll share here about your questions using stops for CFDs since most retail "investors" will never touch them.

    CFDs are Over-The-Counter (OTC) trading vehicles; of course less transparent than Exchange traded vehicles.

    CFDs and spot forex are like your bucket-shop days.

    Your friendly broker is trading AGAINST you (not all to be fair).

    They have access to all the stops, the order flows in their platforms. You tell me, you think why their commissions so low compared to Exchange traded vehicles?

    No free lunch ;)

    OK, if CFDs are Direct Market Access (DMA), then different. Hence you see the trading commissions are higher ;)

    ReplyDelete
  2. Thank you for showing me your understandings of being a trader.

    i think i still prefer life that is still much more simplar for me - who wants to buy, buy; want to sell, sell.

    Want to eat, eat lah!

    Aka buy or sell at the best price i can get at the moments.

    If can not get, try another time.

    "Tan KU KU CHOO HU. BOH LI MY", says the Teocheow.

    Ha! Ha!

    In fact i always think "BOH MY" from the Teocheow is a very powerful 2 words to use with a lot of deeper meanings.

    ReplyDelete
    Replies
    1. temperament,

      Yes, say it with a shrug ;)

      Don't have don't have lor!

      LOL!


      The power to walk away is a great negotiation tactic!

      It also shows we are in a position of strength ;)

      Delete
  3. But i think after buying, a mental stop loss of how many % (depend on individual) may be good because some blue chips can become blue/black chips too.

    Not too mention yellow, green and red chips.

    ReplyDelete
    Replies
    1. temperament,

      I would prefer to classify stocks as big caps, mid-caps, small caps; etc.

      I know calling a stock "blue chips" is a convenient heuristic short-cut, but this mental laziness may lead to grief if we assume blue chip stocks will never go bankrupt...

      If AIG can almost go kaput without the intervention of the US govt, we better have mental stops or know our uncle point as in when to get out!


      No need so drama as in bankruptcies.

      Bought blue chip stock at IPO price of $1.00. Price now languishes at $0.30.

      Management "so kind" as to relieve the pain off buy and hope investors by taking the stock private at the "generous" offer price of $0.50...

      LL :(



      Delete
  4. smol, put simply a stop order is a stop order becos your selling price is above (or buying price is below) the current market price.

    if you don't indicate its a stop order, your order will immediately becomes a market order when you executed it!

    ReplyDelete
    Replies
    1. what the f...

      smol please help me to reverse it haha.....

      Delete
    2. "a stop order is a stop order becos your selling price is below (or buying price is above) the current market price.

      if you don't indicate its a stop order, your order will immediately becomes a market order when you executed it!"

      Delete
    3. coconut,

      LOL!

      Too early in the morning I guess ;)


      Thanks for chiming in with a clearer definition of Stop Orders!



      Wow! Someone in a hurry to reposition before the FOMC decision tonight.

      Less than 10 minutes, the MSCI Simsci component stocks are already a sea of red... Only Comfort Delgro in the green.

      This is trading.

      Yesterday STI closed at 3143. This morning already down to 3118 just 10 minutes into the open.

      I hate this kind of volatility. Maybe great for intraday traders.

      Can someone give me a trend?

      Up or down I don't care.

      LOL!

      Delete
    4. Wait a moment!

      For any types of orders always designated it with the word "Limit" less you are caught with run away Market price.

      It can happen when:-

      The worse case is market suddenly crashes.

      Or it may even be a Flash Market Crash.

      Which happens from time to time though quite rarely.

      Or even market players trying to manipulate the market in some stocks.

      PTOs are meant for minimising your losses and protecting your profits

      In theory it is perfect, in practice you should know what people will say.

      Nevertheless, short-term traders should have an edge over longer traders because the former has to practize PTOs for they buy and sell a lot more than us.

      And practice makes perfect.

      Delete
    5. temperament,

      Most of time, a Limit order will be safer and works better, until it does not.

      In Jan 15, when the Swiss Central Bank surprised the market by not defending the EUR/CHF peg, many traders got burnt.

      Their Stop Limit orders were not filled :(

      The crash was so swift that even the brokers got no time to force sell their clients' positions due to margin call.

      Many retail traders found out the hard way that Stop Limit Orders were not able to protect them.

      Trading margin account 10,000 euros. Now owe broker 90,000 euros!!!???

      Yes!!! We can owe broker more than the money in our trading account! Leverage remember?

      Of course most retail clients defaulted. Hence quite a few brokers bankrupted or were bought over by other bigger brokers.


      Nothing can protect us when a 6 sigma black swan event hits us :(


      Well, how's that for a good example of theory and practice like you've said?

      Scary right?


      I were showing Sillyinvestor the mechanics of Stop Orders some weeks back and warned him about the double-edge thing.

      So glad all the bad examples came true in 1 day for him! LOL!

      That's the best way to learn!


      Delete
    6. "Nothing can protect us when a 6 sigma black swan event hits us :("

      Ya lo!

      For longer-term traders we just got stucked with our portfolio.

      No margin trading or short sell.

      If still have cash may value average down lo.

      Delete
  5. Hi SMOL,

    I use this setup when the price i want to buy is way beyond the allowable buying range of 20 bids. This is esp so for big caps like banks. Let's say the price is $20. 20 bids range is 19.8 to 20.2. So if I want to buy at 19.6, it's out of range, so what I will do is to set a buy price at 19.6 if the market price hits 19.8. That extends my buying price range for those bottom fishing moments lol

    Actually I don't know if people do that or not, but it's a trick that I use. Combined with good till date (GTD) for about 1 month, it allows me to be in a queue when there is no queue LOL

    ReplyDelete
    Replies
    1. Ha! Ha!

      LP you are saying you tikam tikam lol.

      Tikam in this case is what i think can happen:-

      {The worse case is market suddenly crashes.

      Or it may even be a Flash Market Crash.

      Which happens from time to time though quite rarely.

      Or even market players trying to manipulate the market in some stocks.}

      i do tikam with GTD but within the bidding limit.

      You are really more daring than any one of us lol.

      Delete
    2. Even if you manage to get the price you want, remember when after Market suddenly crashes, the price you get may or may not be the 52 WK's low.

      Another words do you really want to buy at that price no matter what?

      We all know different Market's conditions different price, regardless of stock fundamentals.

      Delete
    3. Oh, I always queue and let the price come to me. Very seldom do I chase after the price. The few times I did that resulted in regrets lol

      My price is fixed for a certain timeframe, usually within 1-2 weeks if using daily timeframe, or it can be fixed within 1-2 months if I'm using weekly timeframe.

      Delete
    4. temperament,

      LP's way needs deep conviction.

      He let's the trade come to him; contrast it with chasing after the market for most newbies.


      Its the go fishing style of entries and exits.

      Great for someone with a day job and for those who does not want to be distracted by the market noise ;)




      Delete
  6. Hi temperament,

    Haha, I didn't say I'm tikam tikam though :) I know the level I want to buy, and I just want to queue far ahead before the queue is even formed. I'm a counter trend trading so I'm a bottom fisher. Definitely not anyhow whack an unreasonable price and see if I am lucky or not :)

    I also do it when I know I'll be away, like when I'm on holidays or reservist, because the risk is that the charts that I see when I'm queuing might be different after a while, so it needs a visual eyeing to suss it out.

    ReplyDelete
    Replies
    1. LP,

      I just replied temperament and saw your comment beat me to it!

      But it also shows how much we understand each other.

      Eh, next life can one of us be the opposite sex?



      For counter trend trading, I see you prefer to let the price pierce through you first, and when the spear is withdrawn, you take the ride up with your skewered body ;)

      I'm less tanky. I'll wait for the bounce up and hop on for the free ride like those South Asians on the freight trains.

      Of course I get thrown off the trains a lot!

      LOL!

      Delete
    2. Haha :)

      Wah, I don't like your story leh. How about this? I let all the cavalries fight through the hordes of pikemen and soldiers in front of me, and when the they finally reached me, they will be exhausted and bloodied. I just need to block off their feebly blows and then I'll lead the charge with the next onslaught of reinforcement cavalries! Safety in not being the front line!

      You, on the other hand, are one of those soldiers who cheong when people blow the trumpet and retreat when they waive the coloured signal flags lol! Safety in numbers!

      Delete
    3. LP,

      You sly coward you... Always hiding in the back!

      You buy the dipper you!


      Life is so ironic!

      When it comes to trading, I couldn't be more sheepie!

      What to do?

      Trend followers are not the smartest lot in the trading community.

      You should listen to those Elliot Waves guys! They can predict every single wriggle in the price action. I am so in awe when they speak ;)



      Delete
    4. Hi LP,

      "I'm a counter trend trading so I'm a bottom fisher."

      Think again if the market crashes now and you got DBS at - 22 bids price, is that really bottom fishing?


      Delete

    5. Any time now I expect the fisherman to chime in to show us what is bottom fishing...

      With violin playing in the background, and in black and white scratchy visuals - long long time ago in 2003, I bought DBS at....

      Now that's bottom fishing!

      LOL!




      Delete
    6. Hi SMOL,

      Hahaha, he will tell us his Kepcorp story :) LOL

      Hi Temperament,

      Hmm, you don't get me. The price is determined at a level that I think had already bottomed based on my system of divergence. It's just that I can't queue at that level based on the current market price, hence I'm using the stop order to allow me to buy beyond the buying range.

      Whether it is at -24 bids or -30 bids is incidental and besides the point. I'm not bottom fishing based on the lowest possible price that I can buy! lol

      Delete
    7. Hi LP,

      O. K. i see.

      i am thinking of the word "bottom fisher" (aka "bottom fishing") which can be done only after market crashes.

      So your word "bottom fisher" is misinterpreted/misunderstood by me.

      i agree.

      Any other time, it may be any other types of fishing.

      Must consult our expert Fisher Man CW, how many fishing techniques he has used before lol.


      Delete
  7. let me conclude in this way, men say men is right, women say women is better!

    in trading unfortunately, you better be half man half women!

    ReplyDelete
    Replies
    1. so immagin smol, asking you to talk like a women, act like a women, walk like a women....

      thats how difficult it is to be a successful traders haha

      Delete
    2. coconut,

      Wait a minute.

      Don't tell me you are... 东方不败?


      I am dedicated to my craft; but I don't think I want to go to that extreme...

      You go ahead. Don't mind me.


      I wonder what your wife would say if she found you wearing her shoes and dress when you trade...

      Delete
    3. coconut,

      Well, you did dig a hole for yourself!

      LOL!

      Delete
  8. Hi Jared,

    I think I am also like Temperament. A bit more laid back, when I really want to buy/sell I will monitor closely. Never hit the best price also ok since I can never buy at the bottom or sell at the top. I don't like to have a knee jerk reaction to prices, which is why I am more of a long term investor.

    You too high level la, you trader some more. But good to know all these information, thank you! More of such posts please :)

    ReplyDelete
    Replies
    1. Jes,

      Yes, if we have a longer term time frame, it does not matter if we have made 200.01% or 200.99% return.

      Since no need to count in 2 decimal places, then our entries and exits need not have sniper "precision"; we can live with a shotgun approach - just hit something will do!



      You're a trader too ;)

      You trade nuts and fruits remember?

      Managing between your entry wholesale and exit retail prices is what gives you your $$ kaching!


      Thanks! I do feel more confident and sexier when I talk trading ;)

      Girls do prefer bad boys and traders more!



      Delete
  9. Hi SMOL,

    Interesting post and interesting comments. Non-traders like me really lia bo kiu.

    I'll stick to throwing my fishing rod in and wait.

    Lost my bait? :( Bo bian replenish bait, throw and re-wait again bah.

    Just have to make sure I select the right waters to fish in else I'll be fattening the fish community!

    ReplyDelete
    Replies
    1. Ha! Ha!

      Not only the right waters, you should also must know what type of fish in the water you are going after.

      Delete
    2. Unintelligent Nerd,

      That ability to throw in bait after bait is one reason why some retail investors are more "successful" than others ;)

      The person who can allocate $50K per year for investing has an easier path to hit $1 million in 20 years than the person who can only marshal $10K per year.

      The former don't need any compounding effect or investment gains - just don't lose money can oredi!

      The latter cannot be sitting on unrealised losses or lose money as they work against the magic of compounding interest...


      There! Don't say I can only sing trading songs; I can do investment tunes too ;)



      Delete
    3. Uncle Temperament,

      I go for small-to-medium sized fishes. Bait used is economical and serving size of the catch is just right.

      吃三分饱夠了. I easily satisfied :D

      Delete
    4. Next month fishing trip, I am going to try a new fishing method.

      Delete
    5. CW,

      Use the rope and hook method you learnt from your run around Singapore?


      Delete
  10. "In Jan 15, when the Swiss Central Bank surprised the market by not defending the EUR/CHF peg, many traders got burnt.

    Their Stop Limit orders were not filled :(

    The crash was so swift that even the brokers got no time to force sell their clients' positions due to margin call.

    Many retail traders found out the hard way that Stop Limit Orders were not able to protect them."

    Hi SMOL,

    Let me verify with you

    If stop loss limit order sell was unable to be done due to gaping in price, why there were margin call?

    Of course no use for the broker to key in at all.

    ReplyDelete
    Replies
    1. Opps...........

      Are you referring to CFD trading only and not normal retail trading holding long position putting a Trailing Stop Limit Sell order

      i have not done or read enough about CFD trading.

      Delete
    2. temperament,

      Just treat CFDs like Spot Forex or any other leveraged vehicles from your bucket-shop days.

      In a normal market, if our stop limit orders were not filled, then the unrealised losses will accumulate until they almost wipe out the margin equity in our trading accounts.

      Our brokers will call us to either top up our margin trading accounts with new money or our positions will be force closed.

      Brokers not stupid. Wipe out our trading account is our problem. If clients owe them money and can't pay its their problem!


      But this EUR/CHF massacre happened so fast (in less than 1 hour) that the unrealised losses on clients trading accounts have already EXCEEDED the margin equity in their trading accounts by several times when end of day settlement comes!!!

      In a sense, brokers themselves have no time to "cut-losses" on their clients too!!!???

      Clients default; brokers go bankrupt.


      This can happen to normal non-leveraged retail trading of equities too - especially for contra.

      During the Blumont, LionGold, and Asiasons meltdown, those clients that did contra, lost money, and couldn't pay up, who took the rap?

      Clients default, remisier pay. Remisier default, broker pay.

      Thankfully no brokers went bankrupt. I guess we've learnt from the Pan-Electric incident. Although one broker did lose quite a lot of money...

      Hence when those brokers who practice proper risk management suspect a stock is "too hot", they will either increase the margin requirements, or go to the extent of stopping clients from adding NEW positions, only allowing the liquidation of EXISTING positions.

      A bit like our big daddy property cooling measures if you will.

      Clients not happy can take their business to more "cowboy" brokers who don't mind the risks they are taking on.


      CFDs are similar to Futures - the former is Over-The-Counter; the latter is Exchanged Traded.

      Nothing special about CFDs. We got CFDs for forex, for commodities, for stock indices, for everything!

      In US its option. In Asia and Europe, its CFDs.

      Why?

      CFDs are not allowed in US.


      Delete
    3. SMOL,

      YOU REALLY KNOW YOUR STAFF!

      WELL DONE.

      All what you had described i normally gave a cursory glance.

      No real skin involved ma!

      "Boh Bak Boh Tia"

      Delete
  11. hi SMOL,
    been an investor for so long, happened to read this post of yours. wow, must say I am impressed with your profound knowledge
    can open class to teach people liao. LOL
    long or shorting...anyway sounds like lots of risks to me...better siam

    ReplyDelete
    Replies
    1. Paul,

      We are like the 8 immortals crossing the Eastern sea.

      Everyone doing it in their our own way and own style.

      Makes the journey more fun together!

      Can poke and make fun of each other without worrying about being politically correct. Reminds me of NS ;)


      No one leading; no one following.

      Just fellow journey companions :)




      Delete
  12. remembered during my NS days 15 years when I was in an army camy in north west singpopre, I overheard someone talking about the durians around the place. Immediately I ask EnciK can you bring me there?
    He said, Sir, my pleasure.
    We went in a rover around the area, spending about 1 hr picking up the durians on the ground. it was army training area, so no one was there to fight with us. I the end we picked up 20-30 durians
    I distribuited some to my men and took some home. Encik declined to take, I think he just wanted some fun driving me around the place.
    haha
    It was delicious yellow flesh durians
    great experience

    ReplyDelete
    Replies
    1. Paul,

      You so young! Not even 40 yet.

      For high income earners, your investing style makes sense ;)


      Lucky I no more reservist. Go back in-camp training I have to call you "Sir" too!


      I guess I'm one of the fortunate ones. I did ENJOY my NS and reservist days!

      Despite me being only a LCP and belonging to the sick chicken (Pes C) batch :)


      Delete
  13. nope, i orded as cpt
    early 40s now
    no more ict liao cos i mr already
    cheers

    ReplyDelete

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