What is Buy Stop order and why


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In the daily Portfolio update, I frequently refer to “Buy Stop”. Then what is “Buy Stop”? And why?

I think you should all know stop loss, well, if you don’t even know stop loss, then this web site is definitely not for you. A stop loss is actually a “Sell Stop” where you set a trigger price, say $10, so when stock price drops below $10, the order is triggered automatically therefore your stock is sold automatically. This saves you time and energy for having to watch the stock every minutes. “Buy Stop” is the opposite of the “Sell Stop” where you put a trigger price, say $20 above the current trading price, so when the price rises above $20, the stock is bought automatically which again saves you time and energy for having to watch the stock you want to buy every minutes.

The question is why you need “Buy Stop”?

Say, we see a nice Head and Shoulders Bottom, we want to buy breakout, we cannot watch every minutes and it’s hard to catch exactly the breakout price, so instead we put a “Buy Stop” a few cents above the neckline, say, $121.75, so when the breakout occur, your order will be filled automatically.

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The next chart shows the breakout does occur and your order should be filled around $121.75. The tinted areas are the text book target measured according to different pattern. Well, enjoy the ride!

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Isn’t that simple and exciting? Well, just want to reminder you, in reality, not all breakouts are real, in the example above, it turned out to be a failed breakout…

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16 Comments on "What is Buy Stop order and why"
  1. .
    October 20, 2011 at 10:33 pm

    […] What is Buy Stop order and why? […]

  2. .
    October 21, 2011 at 2:45 am

    […] DZZ low is above the DZZ entry price now, so set breakeven stop loss, half out at close.TNA buy stop not trigged today. Set another buy stop at $ 40.45, stop loss around $ […]

  3. .
    October 21, 2011 at 5:46 pm

    […] What is Buy Stop order and why? […]

  4. .
    October 22, 2011 at 2:45 am

    […] gold short DZZ got stopped out today but the system will try to re-enter the short again. Place a buy stop at $ 5.22, stop loss around $ 4.61.For the bond short, since TMV low [Read the Rest] Cobra’s […]

  5. .
    October 24, 2011 at 8:45 pm

    […] short gold was not triggered today, but system will try to short gold again tomorrow. DZZ buy stop at $5.14, stop loss around […]

  6. .
    October 25, 2011 at 8:46 am

    […] short gold was not triggered today, but system will try to short gold again tomorrow. DZZ buy stop at $ 5.14, stop loss around $ 4.63.Since TNA daily bar low is high above the entry price, so set […]

  7. .
    October 25, 2011 at 9:41 pm

    […] got stopped out today flat. The system will try to long bond tomorrow. Set TMF buy stop at $64.19, stop loss around $56.73. P.S. People kept asking if I could give buy signals the day […]

  8. .
    October 26, 2011 at 9:15 pm

    […] buy stop not triggered and no longer valid. The system will try to short bond tomorrow. Set TMV […]

  9. .
    October 27, 2011 at 12:23 am

    […] Portfolio UpdateBy On October 26, 2011 · Leave a Comment /**/Trading Signals:TMF buy stop not triggered and no longer valid. The system will try to short bond tomorrow. Set TMV […]

  10. .
    October 27, 2011 at 10:10 pm

    […] system will try to long IWM tomorrow, set buy stop at $53.45, stop loss around $33.21. This is a pyramid […]

  11. .
    October 28, 2011 at 1:45 am

    […] 2011 · Leave a Comment /**/Trading Signals:The system will try to long IWM tomorrow, set TNA buy stop at $ 53.45, stop loss around $ 33.21. This is a pyramid position.TMV order was filled at open […]

  12. .
    October 29, 2011 at 6:23 am

    […] Portfolio UpdateBy On October 29, 2011 · Leave a Comment /**/Trading Signals:TNA buy stop not trigged but still valid. Just since NYMO is way too overbought now, so if the buy is triggered […]

  13. Comment left on:
    October 11, 2012 at 4:35 pm
    jenny says:

    how to know fake break out, only need to wait the second day see if below the neckline

    • Site Administrator
      October 11, 2012 at 4:39 pm
      Cobra says:

      There’s no easy way to know. Either you don’t use buy stop, simply wait for the breakout and wait for awhile to see if the breakout is for real, or you blindly buy all breakout using buy stop and relies on the total winning rate of your setups to win in the long run. For example, you tested a breakout setup had 70% winning rate, you just buy every breakout and hope that 70% works.

  14. Comment left on:
    October 27, 2012 at 12:06 am
    ericjamesville says:

    The mm knows the neck lines, breakouts, retraces, etc. 

  15. Comment left on:
    December 24, 2013 at 5:52 pm
    bshinske says:

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