that will guarantee the execution but not the price, and one that will guarantee the price but not the
execution and none that will gaurantee both the price and execution. Limit orders allow you to guarantee
the price, but not the execution when buying or selling and should always be used with penny stocks. We
commonly like to keep our limit orders to our self until the last minute. A regular stop loss or limit order can
be seen by all Market Makers, and in effect determines what those market makers are willing to pay or
accept for shares. By showing them your cards, so to speak, you are essentially hurting your said order will
be filled. There is plenty of software, or other order types provided by brokers and independent designers,
but perhaps the best way to stop a loss is to simply have an eye on the screen and a finger on the trigger,
and fire when your own preset conditions are met, no matter what.
We mentioned that we like to keep our stop losses on the loose side, as much as 50% below our entry
price, and another important consideration has to do with the round number syndrome. Time and time
again, a better risk reward ratio can be achieved by avoiding having preset stop loss prices that are equal
to a very obvious round number, such as $.50, $.25, and $.10 to name a few. Instead, consider lowering
these conditions to a less palpable digit like $.44, $.22 and $.08 in keeping with the previous example. The
small amount of added risk is more than outweighed by the results of history. The reality is that stocks
rarely find support or resistance at round numbers, and in fact, typically penetrate just below or above these
magical milestones. Practicing this strategy will not only jump start your trading by allowing for a better
winning percentage, but will also help lower your commission costs. Also remember when choosing a
broker for Penny Stocks, which you can find out a lot more about in our Choosing a Broker section, you will
always want to use a limit order, so be sure to check for any extra costs involved.
There are many new and exciting order types becoming available to retail traders, some will work well for
stocks under $1.00, others will not. The most interesting, and perhaps most useful exotic order type
available is the trailing stop. This allows you to set a certain price margin whereby as the stock hopefully
moves up, so does your trailing stop loss. Stock prices go up and down, but your trailing stop loss will only
move up, never down, and as soon as the stock price breaches your stop, you are out. Another order type
is called a bracketed order, and is somewhat simpler in design. A bracketed order allows you to set two
price conditions, one where you will buy, and one where you will sell. For stocks priced under $.10, any
type of stop order will likely be unusable. Most if not all brokers have a minimum requirement with respect
to the distance in which a stop order must be entered below the current bid price. Unfortunately, this
minimum is measured in cents rather than percentage points. By and large this minimum ranges from $.
05 to $.10 making them inadequate for extremely low priced stocks. We make the best of this situation in
two ways, first, by always diversifying among several different price ranges to minimize the portfolios
exposure to lack of a definitive stop loss, and second by incorporating a happy medium of rigid electronic
trading with good old fashioned manual trading.
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