Stop Orders Explained

Physician's Money Digest, December31 2004, Volume 11, Issue 24

Note:

One of the most common uses of astop order on a stock is the stop-lossorder. Investors who want to lock in gainson a particular stock can issue a stop-lossorder telling their broker to sell if thestock dips to a predetermined price.Brokers caution that stop-loss orders maybail you out of a stock that's goingthrough a normal correction and mayhave a great deal of room on the upside.Stop orders can also be used when a stockis climbing. Momentum investors areespecially likely to use upside stop orders,looking for stocks that may be breakingout of a trading range. A stop order usedthis way tells the broker to buy when arising stock hits a target price. Putting a buy order on automatic has adownside, because it ignores a stock'strading volume; breakouts based on lightvolume often don't have staying power.