Question from beginner on when to sell:

[mrmarket]

Here is a question from a beginner on selling a stock using market or limit orders...I thought this would be a good opportunity for you experts to help those who want to know and can use your help...please share your wisdom:
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Hi Ernie,

I bought RAVN at 16.67 but I didn't get home to read your sell email until after the markets closed. It closed today at19.84. May I ask you a couple of questions about selling this off?

1. If I use a "Sell Market Order", is order is executed at the Bid price as soon as the US markets open on Monday? That would be good because I'd get close to Friday's closing price, right?
2. Is the Bid price dependent on the number of shares being sold? (Do not laugh at my huge purchase!)
3. In order to sell at the highest price, would it be better to use a Limit Sell or a Stop Limit Sell order?

For some reason, these selling and buying terms are very confusing to me even though I keep reading the definitions over and over again. I can never decide which is the best to use when! When you personally buy a stock, do you set the selling price at the same time?

Price *Change*% Change Bid Ask B/A Size Open
19.84 1.04 5.53% 19.65 28.00 10x10 18.84

Thanks so much for helping a beginner. I am much better with mutual funds.

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[Karel]

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1. If I use a "Sell Market Order", is order is executed at the Bid price as soon as the US markets open on Monday? That would be good because I'd get close to Friday's closing price, right?

Approximately yes for the bid price, and no, there is no guarantee that you are close to the Friday close. Approximately yes, because there may be a whole stack of buy and sell orders waiting, so there might already have been some price action.

2. Is the Bid price dependent on the number of shares being sold? (Do not laugh at my huge purchase!)

Not in principle, but in practice size does matter. If your order is greater than the number of shares offered for the bid price, your offer takes out those orders and then the next bid level (lower!) and perhaps even lower bid levels.

3. In order to sell at the highest price, would it be better to use a Limit Sell or a Stop Limit Sell order?
...

Limit orders are for selling on the rise and buying on the drop. Stop orders are for the opposite: selling on the drop and buying (usually covering a short) on the rise. A Stop Limit order is a modified stop order, so you don't want that, I guess.

What to do?

• If you want to sell at $$$Mr. Market$$$' target, put in a limit order at 19.90
• If you want to sell "close to Friday's close" put in a limit order at 19.8something. Or you might put it a bit lower, if you really want to get out.
• If you think next Monday is your lucky day or you just don't mind, put in a Market Sell order.

My take, I hope I got it right.

Regards,

Karel

[steelman]

Scottrade Account orders

I have my account through Scottrade. These are my order types;
Market- i understand this one
Limit- selling on the rise, buying on the drop (from Karel)???
Stop-selling on the drop (from Karel)
Stop Limit-what is this one?
Trailing stop-what is this one?

Since I don't get to check in every day and I wanted to protect myself if a stock I own drops, would I place a stop order at the price I would sell if it went that low? I have already screwed this one up once. I place a Limit order and a price and it sold it right away because the market price was much higher. Thanks for any pointers.
Steelman

[Karel]

I have my account through Scottrade. These are my order types;
Market- i understand this one
Limit- selling on the rise, buying on the drop (from Karel)???
Stop-selling on the drop (from Karel)
Stop Limit-what is this one?
Trailing stop-what is this one?

Since I don't get to check in every day and I wanted to protect myself if a stock I own drops, would I place a stop order at the price I would sell if it went that low? I have already screwed this one up once. I place a Limit order and a price and it sold it right away because the market price was much higher. Thanks for any pointers.
Steelman

Quite, in that case you want to use a stop order. My broker software gives me a warning when a limit sell is under the current price.

You use a stop limit in case you don't want to sell too low. After the stop is hit, your order becomes a market order. If the stock happens to gap down way below your stop, triggering it, your sell price might be even lower, or in any case much lower than you would hope from your stop. That is where the stop limit comes in: you specify the limit price below which you don't want to sell after the stop is triggered. Instead of selling too low, you then prefer to hold the stock.

Stops may be awkward things. You might consider the "mental stop", evaluating every daily or friday close whether a mental stop is hit and how you want to react. Limit orders, especially sell orders, are much less awkward.

I find limit orders, mostly sells, sometimes buys, suit me very well, and I never use stop orders. Only you can decide (or discover) what suits your style best.

Regards,

Karel