GTC Limit Orders with CPT / AIM

With AIM (Robert Lichello's Automatic Investment Management), we trade OPPOSITE the typical trader. When they buy, we are selling. When they sell, we are buying. As a stock price goes up, they are buying and we are eagerly selling to them. When the price goes down, we are eagerly buying from them.

So, when we are selling, we sell on a price RISE. If the price reaches a certain point, we are willing to SELL. The GTC LIMIT order to SELL does that for us.

Say a price is now at $10.00. A typical trader would perhaps have a BUY STOP order in for $10.50. We might have a LIMIT SELL order in for $10.50. At $10.50 (or slightly higher), he buys our shares from us.

When we are buying, we are buying on DECLINING prices. If the price goes down to a certain point, we are willing to BUY. The GTC LIMIT order to BUY does that for us.

Say a price is now at $10.00. A typical trader would perhaps have a SELL STOP order (aka "stop loss") in for $9.50. We might have a LIMIT BUY order in for $9.50. At $9.50 (or slightly lower) we willingly buy the shares from him that he is dumping in a panic.

Stop Orders and Limit Orders Clarified

Most people are familiar with the SELL STOP order (that is also know as the "stop loss order"). When the price DECLINES and hits your STOP price, the order then becomes a MARKET ORDER to SELL. (That is why you often get a worse sell price than you may have expected.)

You can also place a SELL STOP LIMIT order. That is where if the price hits the STOP, the order becomes a LIMIT order. You set that LIMIT price below the STOP price. So there is that range where the order will be executed -- if it is executed. If the price drops too far too fast, you will still have your stock. So if you were looking for a "stop loss" with a SELL STOP LIMIT, you could be S.O.L.

Conversely with the BUY STOP order. When the price RISES and hits your STOP price, the order becomes a MARKET ORDER to BUY.

Now, to prevent paying too much on a BUY (say you want in, but not at a ridiculously high price), you can put in a BUY STOP LIMIT order. You set the LIMIT part of the order at the maximum price you are willing to pay. So, if the price hits the STOP price, your order becomes a LIMIT order, where you may get a BUY fill price below your LIMIT price. If the price rises too far too fast, you may not get filled on your BUY order.

The BUY STOP LIMIT order is frequently placed the night before as a day order when you want in, but if the opening price is too high, fuggedaboudit.

Also note the SELL STOP order or SELL STOP LIMIT order can be used instead of a MARKET order to initiate a SHORT position. Then a BUY STOP order is a "stop loss" order if you are short and want/need to cover.

------ Limit

.10 typical

------ Buy Stop

.15 typical

------ Ask
------ Bid

.15 typical

------ Sell Stop ("stop loss")

.10 typical

------ Limit

AIM or Technical Analysis?

AIM or TA (Technical Analysis)

Some AIMers (users of Robert Lichello's Automatic Investment Management algorithm), while seeing the benefits of using Good Until Canceled (Good till Canceled - GTC) orders, often try to second guess what to do.

If you as a trader hold off on putting in a GTC order to see what the market will do; that means you are trying to outguess the market.

As I have mentioned before (sort of at least), frequently a GTC is just touched or exceeded by a few points, triggering the order.

Here is a BUY order example of what I mean.

If you didn't have the GTC BUY LIMIT order in, you would have to sit at the monitor, and when/if the price hit your target, you would then STILL have to decide at that point - do a market order (or a close limit), or wait and see if the price declines more. Now, if the price doesn't decline more, but turns around, you have missed the BUY.

And, how far would you wait for the price to decline PAST your actual target price before you decide to act?

Yes, I know, some have mentioned watching the price drop, then when it "shows signs" of turning around, then buy. At the hopefully, much lower price. But, remember, it could turn around at your target price, which would be missed, just as well as at some lower price. That is trying to play technical analysis (TA) which to me is WAG (wild ass guessing). (And believe me, I've tried that game.)

My TA is now limited to shaving a few cents every now and then, as mentioned in my post of 2007-02-26. If I come up with the TA holy grail - I'll let you know (for a price, of course ;>) )

So, which are you doing -- AIMing, or trying to outguess the market?

Good Until Cancelled Orders (GTC) are a Good Thing

An advantage of using Robert Lichello's Automatic Investment Management (AIM) algorithm is that, when using GTC LIMIT orders, we often get a much BETTER price when the market opens than what we specified in our limit orders. OTH, typical traders with STOP orders in place often get WORSE prices (often much worse) than they specified.

For example, I had a limit BUY order in for $26.53 for [a stock] since my last sell of it a week or so ago. This morning, at 09:30:33, I got filled for $26.18. Yesirree, that was a GOOD thing. Then the price was back up to $26.43 at the close of the day.

Now, don't you pity the fool this morning with a stop loss order sitting at $26.53?