A Stop-Limit Order basically automates the preferences of an investor or trader, to reduce exposure to price uncertainty even after a trade ticket is entered, by stipulating a price at which the search for a bid/ask price is to begin, but limiting the range of prices at which an order can actually be entered or executed. A Stop-Limit Order has two parts: the Stop Price and the Limit Price. The stop price is like an amendment or contract rider on a security that is held which stipulates that if the price of the security crosses the Stop price, the search for an agreeable price begins. Continue reading...
A stop order is like putting a lure out on a pond but having a robot there to cut the line or reel in the lure if the conditions are not met, such as a fish too small to bother with, to stick with the metaphor, so that the fisher-person (investor) can take a nap or attend to the many other lines he may have in the water. A stop order names a price which serves as a trigger point, and once the security price has crossed this trigger point, a market order is entered to buy or sell at the next available price. It might be called a buy-stop or sell-stop depending on which action it pertains to. Continue reading...
A stop-loss order is appended to a securities position being held long or short, and stipulates that the security is to be sold or bought if the price moves beyond the stop price, at which point the investor seeks to "cut his losses," or limit his potential exposure to losses. A stop-loss order will name a price below the market price on a long position and above the market price on a short position, at which point a sell order will be triggered for the long position and a buy order will be triggered to cover the short position, with the goal being to limit the potential losses to which an investor is exposed. Continue reading...
A market order is an order to execute a trade (buy or sell) immediately at whatever the current market price. If an investor places a market order after hours, for instance, the order will be filled at the market’s open wherever the price of the security is. Placing a market order, also known as an “unrestricted order,” means the person trading the security is more concerned with timely execution of the trade than they are the actual price. If a market order is placed for a security that has very high volumes and is a common stock, the market order is likely to be filled right away. Continue reading...
A Limit Order is a type of order to buy or sell a security, where the trader wants to set a specific price for the trade, or any price that’s better than the price set. From a buy and sell standpoint, a buy limit order would be designed to have the trade executed at the designated price, or any price lower than that. A sell order is just the opposite, where the trader hopes to execute the trade at a minimum set price. Limit orders typically have a period of time before they are canceled, if the designated price is not reached by a certain period. Continue reading...
A market-on-close order is used to execute a trade at the last possible moment before the market closes for the day. This may be an order to sell or buy. Market-on-close orders are instructions to execute a trade just before the market closes for the day, at the best price available at the time. The exchange will actually settle all of the market-on-close orders at the same price. Why would an investor enter this kind of trade order? Continue reading...
Traders can enter time-specific trade orders in the form of opening or closing orders, which are only to be executed as close to the opening or closing price as possible. Market-on-open orders are looking to buy or sell immediately after the market opens, at the opening price. Market-on-open orders are instructions for a broker or floor trader (even though we don’t see those much anymore these days) to buy or sell shares at opening price of the stock being traded. Continue reading...
A market-with-protection order starts out as a regular market order to buy or sell at the market price. This kind of order will cancel the remainder of the order if the price moves before the entire order is filled, and it is immediately re-entered as a limit order with a price just above or below the market price. A market-with-protection order allows investors to hedge against the change that prices will move unexpectedly before their entire order is filled at the desired price. So an investor would submit an order to be executed at the current market price, and then, if the price moved, the order would automatically cancel the rest of the order and resubmit it as a limit order. Continue reading...
A broadening bottom can be characterized as a bullish reversal pattern. It consists of two divergent lines that form a triangle. The movements between the two triangle sides increase as the pattern continues. Each side must be touched at least twice to be validated. The Broadening Bottom pattern is formed when the price of a security progressively makes higher highs (2, 4) and lower lows (1, 3, 5) following two widening trend lines. The price is expected to move up or down past the pattern depending on which line is broken first. What distinguishes a Broadening Bottom from a Broadening Top is that the price of the security is declining prior to entering the pattern formation. Continue reading...
A credit crunch is when access to liquidity dries up dramatically in rapid fashion, or becomes less accessible due to a spike in borrowing rates. Central banks will often step-in to try and curb the lack of liquidity by offering the markets access to cash at lower than market rates, in the event of a crisis. Perhaps the most famous credit crunch in history occurred in late 2007 and early 2008, when bank balance sheets became highly leveraged overnight due to mark-to-market accounting rules that were applied to the mortgage backed security portfolios on their balance sheets. Continue reading...
The Triple Bottom pattern appears when there are three distinct low points (1, 3, 5) that represent a consistent support level. The security tests the support level over time but eventually breaks resistance and makes a strong move to the upside. This type of formation happens when sellers can not break the support price, and market participants eventually pour in. Once the price breaks out from the top pattern boundary, day traders and swing traders should trade with an UP trend. Consider buying a security or a call option at the breakout price level. To identify an exit, compute the target price by adding the pattern’s height (highest price minus the bottom price support level) to the breakout level the highest high. When trading, wait for the confirmation move, which is when the price rises above the breakout level. Continue reading...
The Ascending Triangle pattern forms when the price of a security tests a resistance level and creates a horizontal top line (1, 3, 5), with an upward-sloping bottom line (2, 4) formed by a rising support level. The breakout can either be up or down, and it will determine whether the target price is higher or lower. This pattern is commonly associated with directionless markets, since the contraction (narrowing) of the market range signals that neither bulls nor bears are in control. When the price of a security consolidates around a certain level, it may indicate growing investor confidence for a significant uptrend. Continue reading...
A letter of credit is a provided by a bank or financial institution on behalf of a borrower or buyer, to ensure the seller that payments will be made on time and in full. In the event that the buyer is unable to make payment on the purchase, the bank will have to step-in to cover the full or remaining amount of the purchase. Letters of credit are often used in international transactions to guarantee that payment will be received. Continue reading...
Credit debt or credit card debt is a type of consumer debt that is incurred through a short-term revolving loan facility. The most common of course is a credit card company issuing a card to a client to make purchases, with the client being responsible for minimum payments plus whatever interest rate applicable. Removing credit card debt from one’s balance sheet is often an effective way of improving your financial life. Continue reading...
The Rectangle Bottom pattern forms when the price of a security is stuck in a range bound motion. Two horizontal lines (1, 3, 5) and (2, 4) form the pattern as the security bounces up and down between support and resistance levels. Depending on who gives up first buyers or sellers the price can breakout in either direction. This pattern is commonly associated with directionless markets. Usually, the pattern performs better when there is a strong downtrend leading into the formation. Continue reading...
The Rectangle Top pattern forms when the price of a security is stuck in a range bound motion. Two horizontal lines (top: 1, 3, 5) and (bottom: 2, 4) form the pattern as the security bounces up and down between support and resistance levels. Depending on who gives up first buyers or sellers the price can breakout in either direction. This pattern is commonly associated with directionless markets. Usually the pattern performs better when there is a strong uptrend leading into the formation. Continue reading...
The Three Rising Valleys pattern forms when three minor Lows (1, 3, 5) arranged along an upward sloping trend line. It often appears at the end of a declining trend – an indication that buyers are overtaking sellers, which ultimately pushes the price higher. This type of formation happens when investors shift into buying mode following a consolidation period. Once the price breaks out from the top pattern boundary, day traders and swing traders should trade with an UP trend. Consider buying a security or a call option at the breakout price level. To identify an exit, compute the target price level by adding the pattern’s height (highest price minus the lowest price within the pattern) to the breakout level (the highest high). When trading, wait for the confirmation move, which is when the price rises above the breakout level. Continue reading...
The Rectangle Bottom pattern forms when the price of a security is stuck in a rangebound motion, bouncing between support and resistance levels. Two horizontal lines (1, 3, 5) and (2, 4) form the pattern. Depending on who gives up first buyers or sellers the price can Breakout in either direction. This pattern is commonly associated with directionless markets. Usually the pattern performs better when there is a strong downtrend leading into the formation. Continue reading...
The Rectangle Top pattern forms when the price of a security is stuck in a rangebound motion, and it bounces between support and resistance levels. Two horizontal lines are formed (top: 1, 3, 5) and (bottom: 2, 4) as a result. Depending on who gives up first – buyers or sellers – the price can Breakout in either direction. This pattern is commonly associated with directionless markets. Usually the pattern performs better when there is a strong uptrend leading into the formation. Continue reading...
The Three Falling Peaks pattern forms when three minor Highs (1, 3, 5) arrange along a downward-sloping trend line. This pattern often emerges at the end of a rising trend, when a security slowly rolls over. It potentially indicates sellers moving in to replace buyers, which pushes the price lower. If the price breaks out from the bottom pattern boundary, day traders and swing traders should trade with the DOWN trend. Consider selling the security short or buying a put option at the downward breakout price level. To identify an exit, compute the target price by subtracting the pattern’s height (maximum price minus minimum price within the pattern) from the breakout level the lowest low. When trading, wait for the confirmation move, which is when the price moves below the breakout level. Continue reading...