Unraveled Teacher

Before you start placing trades on any platform, it’s important to know there are several different types of orders that can be placed. Each has its own purpose, and depending on what type of trader you are, you’ll find that some work much better than others. If you’re trading on the WeBull mobile app, you will notice that your order screen always defaults you to a limit order.

By tapping on the dropdown menu where it says LIMIT, you’ll get a screen that displays both simple order options (as seen above) and group order options if you scroll down. There is a short description of each order type, but let’s review each simple order type in detail.

Limit and Market Orders

These are the two most commonly used orders because one of these two is usually the default order type on most trading platforms. WeBull defaults to a limit order, so if you place a trade, you’ll have to enter your limit price. When going long (betting the stock price will rise), you enter the highest price you want to pay per share of stock. If a stock is trading at $10.50 and you want to get in, you’ll have to enter your buy order at $10.50 or higher if you want your order filled. If you enter your limit price right at $10.50, you will not get your order filled unless the stock price is $10.50 or lower. If the stock rises to $10.55 while your entering your order details and you put in $10.50 as your limit price, you will not get filled. If you’re using limit orders to buy stocks that are moving quickly (for example if you are day trading volatile stocks), you will have to enter your limit price at a few cents above the current price if you want to get filled. If a stock is trading at $10.50 but ticking up while you are entering your order, you may want to enter the limit order for $10.60. When you place the limit order, you are guaranteed to get filled at $10.60 or better (lower). The benefit of a limit order is that you are in control of the maximum price you want to pay per share.

Market orders, on the other hand, are quicker to enter because you don’t specify a price, but they put you at the mercy of fluctuating market prices. Simply put, you indicate how many shares you want to buy, place the order, then go back and check to see what price you paid per share. While this is faster than using a limit order, it can be dangerous if you’re trading a stock that’s moving up quickly. Let’s say you want to enter a stock that’s trading at $1.25 because it has just broken its high of day and looks like it will head to $2. You want to enter around $1.25 but the price is moving quickly and you feel you won’t get in fast enough using a limit order (often a stock price will pass your limit price too quickly and then you’ll have to go in and cancel or modify the limit price which can leave you without your ideal entry point) so you opt for a market order. A market order isn’t determined by you, but by the market (hence the name) so you actually have no idea what price you’ll be getting until the order is filled. If this stock moved from $1.25 to $1.60 before your order was filled, you could be getting your shares at $1.60 when you were trying to get in closer to $1.25 in order to make the profit you were originally shooting for. Often times, day traders who are trading low float penny stocks feel they need to use market orders to get in quickly but then find that they got filled at the top of a spike. This is a terrible, money-losing situation so if you are day trading these kinds of volatile stocks, consider an order type that gives you more control. It’s better to miss your ideal entry than to get a horrible entry!

So, what good is a market order then? Well, I use market orders when I’m adding to my IRA. I buy dividend stocks and REITs periodically no matter the price, so a market order works fine for this. That is the only time I use market orders. If you’re trading with Robinhood, check out this post that explains how to switch from a market order to a limit order.

Stop and Stop Limit Orders

A stop order is a pretty simple order type. Let’s say you want to buy a stock if it breaks out above a strong resistance point at $5.00 but the stock is currently trading at $4.95. You know you don’t want to buy it under $5.00 but don’t want to miss your entry on the breakout above $5.00. You can enter a stop order for a price higher than the current price of $4.95. Let’s say you want to stock to hit $5.10 to be sure it has broken above that $5.00 resistance. Enter a stop order for $5.10 and then if the price of the stock rises to that amount, your order will turn into a market order and trigger for $5.10 or higher. This carries the same risk that a market order carries. If the price suddenly shoots up from $4.95 to $5.45 for example, you’ll get filled anywhere between $5.10 and $5.45. It’s beyond your control. The only part of the order you control with a stop order is the price you want to buy above.

A stop limit order will have you enter two prices: a stop price and a limit price. So, using the same example, let’s say you know you want to buy the stock if it hits $5.10 but you don’t want to enter anywhere above $5.15 because the higher entry will eat up too much of your potential profit. This is where a stop limit order is incredibly useful. Enter the stop price as $5.10 and the limit price as $5.15. You are now guaranteed to only get filled between those two prices. If the stock never reaches $5.10, your order won’t be placed. If the stock moves up so fast that it completely blasts past your $5.10 to $5.15 range, you won’t get filled at some crazy high price. This is my favorite way to enter a trade when I am day trading. If your trading plan allows you to pinpoint a specific price for an entry (like the break of resistance or high of day on the long side, or a break below a support level or low of day on the short side) you can use a stop limit order to make sure you get the entry you need for a successful trade. Again, if your order doesn’t fill, it’s always better to have no position than a position with a horrible entry!

Trailing Stop Orders

This is where the “simple” orders start to get a bit more complex. With a trailing stop order, your entry price is dependent on the movement of the stock’s price. If you want to buy a stock that has been heading down for some time and you want to buy “the dip” for the reversal to the upside, you might use a trailing stop order to buy in. I’m not saying this is a good way to dip buy stocks (I’d rather look at more than just the price in this scenario), but this is how the order is used. On a trailing stop order, you will choose either a dollar amount or a percentage you want your order to “trail” by.

So let’s say you want buy a stock that is currently trading at $20.00. It’s been heading down and you think the $20 level is a likely bottom. You want to enter when the stock starts heading back up but want confirmation that it isn’t going to just head lower after you enter. Perhaps you think a move up to $22 would signal a good entry point. While the stock is trading at $20, you could enter a trailing stop order for $2 above the current price ($20) so your order would fill at $22 if the stock reverses and heads up right after you enter the order. If the stock does not reverse and head up but instead moves down to $18 before turning around, you entry price is automatically moved to $2 above the new current price of $18. This would make your entry at $20. This can keep going as long as the stock continues to move down. If it just keeps sinking, your entry price moves lower as the stock moves lower. Your fills only when the stock begins to move up and hits the increment you set-in this example $2. If the stock sank all the way to $10 per share and then moved up from that point, you would have an order trigger at $12.

You can also enter a percent for a trailing stop order. Instead of $2 in this example, you could input 10% then your order would trail to stock’s price by 10% until the reversal to upside. I don’t typically use trailing stop orders on the buy side, and only rarely use them when I’m selling because I prefer a more hands-on approach to my entries and exits.

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