Investors set stock price levels to avoid buying at market peaks and selling at market troughs. Successful stock investing starts with researching companies that you understand and creating a short list of stocks for your portfolio. You can use the trailing 12-month earnings per share, historical price charts and industry price-to-earnings ratios to set target prices for buying these stocks. Your online broker should provide you the ordering tools necessary to buy a stock once it hits your target price level.
Place a buy market order if the stock is trading around your target price. Market orders fill at the best available price. You should receive confirmation of an order fill within seconds of placing the order.Step 2
Enter a limit order, which executes at the limit price or better. For example, if you enter a buy limit order with a limit price of $20, the order will execute only if the stock trades at $20 or less. The disadvantage of limit orders is that your order may not fill if the stock never trades at or below your limit price.Step 3
Place a buy stop order, which becomes a market order at the specified stop price. For example, if a stock is trading around $15, you could set a stop-buy order with a stop price of $18 if you believe that the stock will trade higher once it crosses $18. If you are right, the stop order will trigger at $18 and execute as a market order. The fill price will depend on the market price when the order reaches the exchange.Step 4
Enter a buy stop-limit order, which becomes a limit order if the stock hits the stop price. Continuing with the earlier example, if you were to set a limit of $18.50, your order will fill at prices between $18 and $18.50. This would protect you from getting order fills at excessively high prices, especially if you are buying thinly traded stocks or placing orders in a fast-moving market.
- Prices can change rapidly in fast-moving markets. This means that market orders could fill at prices significantly above or below what the prices were when you placed these orders. In these markets, place limit or stop-limit orders because they would fill at your specified limit prices or better.
- Short sellers might need to buy back and cover their short positions at certain price levels. They could set stop or stop-limit orders to minimize losses or to protect profits. These stop orders will trigger once the stocks hit the specified stop prices, and the short sellers would be able to cover their positions without incurring significant losses.
- stock market analysis screenshot image by .shock from Fotolia.com