How can I prevent my limit order is not filled if the stock gaps above the entry price?


The scenario You describe is very common and can be frustrating for any type of investor. Many traders will identify a potentially profitable setup and to place a limit order after hours so their order will be filled at the desired price or better when the stock market opens. The problem is that many buyers are doing the same, and the increased demand may cause the stock price to gap higher.

A limit order is not effective when the price of the underlying jumps above the entry price because the limit price is the maximum amount that an investor is willing to pay, and in this case, are currently below market value. You can minimize the likelihood of such a situation is not repeated, if you know two types of orders: buy-stop order and buy stop-limit order. (An overview of the different types of orders, see “the Basics of order entry.”)

A buy-stop order is an order type that becomes a market order once the stated stop price is reached. To explain how this works, let’s look at a hypothetical example. For example, the current price of company XYZ is $12.86 and it looks like he is positioned to go higher. You can place a buy-stop order with a stop price set at $13.01. This order will become a market order once the market price rose above $13.01. With this order type, You might eliminate the problem of not filled when the price rises above the desired entry price.

Unfortunately, using this order, you run the risk to unwanted level if price surges much higher. For example, if the price of XYZ company opens the next day at $ 17, buy-stop order will be triggered and you will buy the shares around $17, and about 13$, as you wanted.

Using an order known as buy stop limit is a way for you to eliminate the chance of getting a bad fill and limit the price paid for the asset. This order is similar to a buy-stop order, except that the limit price is set as the maximum amount the investor is willing to pay. For example, assume that the buy-stop limit set on XYZ company with a stop price of $13.01 and the marginal price set at $15. If the price jumps up to $17, this order will not be filled, as you have indicated that You do not want to pay more than $15.

[Note: the order types is an extremely important concept to learn and understand, especially for short term traders that rely on fast and accurate order execution. Questions answers became a day trader will teach you how to decide what types to use in addition to other must-know information for successful trading.]

Once you are comfortable with these types of orders, you will increase the likelihood that your orders are filled, when and how you want them to be filled.

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