A:

The scenario you describe is very common and can be frustrating for any type of investor. Many traders will identify a potentially profitable set-up and place a limit order after hours so their order will be filled at their desired price or better when the stock market opens. The problem is that many buyers do the same thing, and the increased demand causes the price of the stock to gap higher. A limit order is ineffective when the price of the underlying jumps above the entry price because the limit price is the maximum amount the investor is willing to pay, and in this case it is currently below the market price. You can minimize the chances of this situation happening again if you understand these two types of orders: the buy-stop order and the buy-stop-limit order. (For an overview of different order types, see The Basics Of Order Entry.)

A buy-stop order is a type of order that is transformed into a market order once the stated stop price has been reached. To explain how this would work, let's consider a hypothetical example. Let's say the current price of XYZ Company is $12.86 and it looks like it is positioned to go higher. You may wish to place a buy-stop order with the stop price set at $13.01. This order would turn to a market order once the market price rose above $13.01. By using this type of order, you would eliminate the problem of not getting filled when the price rises above your desired entry price. Unfortunately, by using this order you run the risk of getting filled at an unwanted level if the price surges drastically higher. For example, if the price of XYZ Company opens the next day at $17, the buy-stop order will be triggered and you will buy the shares near $17 instead of around $13, as you wanted.

Using an order known as a buy-stop-limit is a way for you to eliminate the chance of getting a bad fill and to limit the price that is paid for the asset. This order is similar to the buy-stop order, except that a limit price is also set as the maximum amount the investor is willing to pay. For example, assume a buy-stop-limit order is set on XYZ Company with a stop price at $13.01 and a limit price set at $15. If the price jumps to $17, this order will not get filled because you specified that you don't want to pay more than $15.

Once you are comfortable with these order types, you will increase the likelihood of your orders getting filled when and how you want them to be filled.

RELATED FAQS
  1. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  2. What's the difference between a stop and a limit order?

    Different types of orders allow you to be more specific about how you'd like your broker to fulfill your trades. When you ... Read Full Answer >>
  3. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  4. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  5. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  6. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
Related Articles
  1. Active Trading Fundamentals

    4 Stocks With Bullish Head and Shoulders Patterns for 2016 (PG, ETR)

    Discover analyses of the top four stocks with bullish head and shoulders patterns forming in 2016, and learn the prices at which they should be considered.
  2. Chart Advisor

    Uptrending Stocks Dwindle, a Few Remain (EW, WEC, WR)

    The number of uptrending stocks is shrinking, but here a few that remain in uptrends.
  3. Chart Advisor

    Trade Setups Based on Descending Trend Channels (LBTYK, RRC)

    These descending trend channels have provided reliable sell signals in the past, and are giving the signal again.
  4. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
  5. Chart Advisor

    Breakout Opportunity Stocks: CPA, GNRC, WWE

    After a period of contracting volatility, watch for breakouts and bigger moves to come in these stocks.
  6. Charts & Patterns

    How To Use Volume To Improve Your Trading

    The basic guidelines to analyzing volume may not apply in all situations, but overall, they can help direct entry and exit decisions.
  7. Trading Strategies

    4 Common Active Trading Strategies

    Active trading entails buying and selling securities with the intent of profiting from short-term price movements.
  8. Chart Advisor

    3 Charts That Suggest Now Is The Time To Invest In Real Estate (VNQ, SPG,PSA)

    Real estate assets have some of the strongest uptrends around. We'll take a look at three candidates poised for a move higher.
  9. Chart Advisor

    Stocks With More Upside Due to Bear Traps (TAP, SPY)

    A bear trap is a pattern that typically leads to at least a short-term rise in prices. Here are stocks exhibiting the pattern.
  10. Active Trading Fundamentals

    New Traders: Trade the Market in 5 Steps

    New traders shouldn’t throw money at securities without knowing why prices move. Follow these five steps to tilt the odds in your favor.
RELATED TERMS
  1. Golden Cross

    A crossover involving a security's short-term moving average ...
  2. Cup and Handle

    A pattern on bar charts resembling a cup with a handle. The cup ...
  3. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, ...
  4. Confirmation

    The use of an additional indicator or indicators to substantiate ...
  5. At The Lowest Possible Price

    A type of security trading designation that instructs a brokerage ...
  6. At The Highest Possible Price

    A type of security trading designation that instructs a brokerage ...
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center