A reader had recently asked about placing stop losses so what better way than to show a visual. I personally place trades via Ameritrade, hence the source of the information provided below.
First, go in and buy whatever amount of shares you plan to allocate towards your portfolio. For example, you place an order to buy 500 shares of Google (GOOG). Once you have verified that you own the 500 shares the next step is to place your stop loss.
Let’s say I bought 500 shares of GOOG at $473.70/share…
Next, Go back into the trading menu and click on sell, input the quantity you wish to sell. In most cases I will liquidate (sell) all my shares if the stock drops 5%. to calculate your stop price take (.95*purchase price). In this case I would calculate (.95*$473.70)=$450
The $450 represents the price below our purchase price in which we would like to sell out the stock if it happens to go against us.
Placing the stop loss…
So how do we put all this together? Look at the screen capture below. You will see that I clicked on sell, quantity to be sold is 500 shares, type in your ticker symbol “GOOG.”
(Source: TD Ameritrade)
Now, go to your order type. You should be able to choose between:
-Limit
-Market
-Stop Market
-Stop Limit
-Trailing Stop %
-Trailing Stop $
For our purposes you would choose either stop market (guarantees exit, but not price) or stop limit (guarantees price, but you may not be able to get out of the position). This is your choice, but I usually go with the stop market so get me out when I absolutely need to. In the “Activation Price” box you will need to put in your stop loss price. Remember earlier we had calculated it to be around $450/share.
Finally, we’re almost done!
Under the “Expiration” drop down window you shoudl see:
-Day
-Day + ext.
-GTC
-GTC + ext.
-Ext. AM
-Ext. PM
Note:
-Ext. I believe stands for extended hours of trading)
-GTC stands for Good Till Cancelled, meaning that this stop trade you are placing will hold until either you cancel the trade yourself or the stop is triggered by the price of the stock.
More importantly you should choose GTC or GTC + ext.
Leave all other options the same, review your order, and place the trade.
Voila! Stop loss set. This whole process may seem a little confusing at first, but give it a try on a smaller trade and I promise you’ll be a quick learner.
Good Investing…
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