In our last post we purchased BAC at $22.81. Now that we own those shares we need to manage our risk by placing a sell stop order.

A sell stop order is an order to sell your shares if a specific trigger price is hit. Our alert said: Stop @ $21.98 which means that is the level we would want this trade to close if it were to move against us. A stop order will make that happen automatically in case we aren’t available to sit and watch the markets. It’s also good psychologically, as it is easier to stick to your trading rules if the stop is already placed, as opposed to making the decision to sell and physically placing the sell order when you are already down on the trade.

There are two types of Sell Stops we need to understand. A Sell Stop Market, and a Sell Stop Limit. In either case the order will be triggered by our Stop price of $21.98. When that price is hit your order will automatically execute at the next trade available. If you placed a Sell Stop Market order you might be filled a couple of cents lower if the market was moving straight down, or with a Sell Stop Limit it will fill only if it can do so at or above your limit price. In the case of a very liquid stock like BAC we could place a Sell Stop Market order and expect to be filled within a penny or so of our stop. When a stock is less liquid, with wider bid/ask spreads I will often place a Sell Stop Limit with a price at or just a couple cents below my stop price.

You should also be sure to make the order Good ’til Canceled (GTC).

First step is to click your position inside of your portfolio page, which will bring up a menu where you can choose Close Positions.

From there you want to confirm it says Sell to Close, and has the right number of shares in the Quantity box. You’ll then click Stop Limit, and enter the stop price of $21.98. This is the price your order will trigger at. If you want the order to fill at any price you could choose the Stop Market and enter your price, which will trigger your order and then fill it at whatever the next available bid price is. I generally use Stop Limit prices, in which case after entering my Stop Price I then have to go into the Limit Price box and enter my limit price. I usually enter a price just slightly lower, $21.95, but this does leave open the possibility that your order could trigger but not be filled because there were no bids available at $21.95 or higher. If you won’t be around to watch the markets you may find it better to choose the Stop Market option. I also am sure to click Good-til-Cancel at this point, since I want that order to remain in place over the coming days and weeks. Click Review and Send, confirm everything is correct, then click Send. You will see the order in your portfolio.