Beat the market with a stop buy order

Think of orders in the stock market as your strategy. The stop loss order is type of order and many investors are familiar with how a stop loss sell order is used. But there's another version of a stop order you may consider. Here's how it works.

The stop buy order can transform your portfolio and make you a master of the markets.

Related: See when it is highlighted for use in real time stock market conditions.

First let's define the stop order so we know what stop actually means. Basically, the idea is you stop and get an order filled (executed) when the market price moves to your specified (limit) price. The stop loss (sell) attempts to halt a down trend from continuing in the portfolio. Conversely, a stop buy order starts a position in the portfolio when the order is filled.

The stop buy order should be called a Go Buy order!

In a stop buy order you pre-determine a buy of the chosen security in the event the price keeps rising. For example you are considering buying a stock or E.T.F. but you're not sure about what to do or you're spooked. Here's how you might use the Go buy order (o.k. it's a stop buy).

Scenario: the stock market has been weak but may be on the rebound. The challenge with buying in this scenario is fear is prevalent. We could use a stop buy for anything that may go higher but it can also be used to acquire downside protection using an inverse E.T.F. or the volatility index (VXX). In our scenario we could have a move in either direction as certainty about the price trend, short term, is low.

How to execute a stop buy order

Go into your online account and set up an order for VXX and enter the number of shares. The strategy is to acquire downside protection in the event selling resumes and fear rises. Continue with the order by opening up your order options and choose stop. See figure 1.

In figure 2 you are entering the stop price which is the price you want the order to be executed on. Note, once the market reaches this price your order becomes a market order and will be filled at the next best price. A stop limit may also be available which, if you choose it, specifies a limit to how much you would pay for the buy (and not get it filled).

Figure 1. Set up a stop BUY

Figure 2. Enter the stop price and enter the BUY order.

Figure 3: how the price was determined.

You can see the current day's intra-day price range and the current price. The decision is to buy IF the price pushes higher. A stop price close to the current price was used in the event the price pushed higher late in the session (thereby acquiring the position and avoiding the possibility of a large price increase at the start of the next session). The current price is $47.56 (see the green arrow).

Crave Investor provides execution tips and strategies for all market scenarios.

How to understand the stock market

Technical analysis, balance sheets and income statements, research reports, CNBC and BNN and the latest news. Many believe these are the ingredients for managing real money in the stock market. But is it?

You'd think with the amount of information on the internet alone everybody would be doing great with their stock portfolios. But who's actually getting ahead of the crowd?

There are literally thousands of books on how to invest in the stock market. However, most books are designed to sell by giving people what they want to hear, not what they need. They inherently make people feel better so they may justify the shortcomings with their stock strategies.

What does it take to succeed in the stock market?

In our investment workshops we typically arrive at a point in the session(s) when something happens. As participants dig in with the content there is an increasing amount of energy, openness, questioning and ultimately resistance. It is critical resistance emerges as without it learning can be cut off. Here's what happens next.

Related: Behavioural Finance. It's about how you deal with it.

How do you know what works?

Consider this hypothetical scenario as we do in classroom workshops and online webinars; "What if you were presenting your investment decisions(s) to Warren Buffet? How would you back up your reasoning?"

Now we arrive at the ultimate question underpinning everything in the investment process. "How do you know"? What is the evidence that supports a methodology, a strategy and ultimately the buy and sell transactions?

If we put bias aside we can see the stock market may be analyzed with science utilizing analytics or metrics that translate into a decision making matrix for every situation. But there's more.

Connecting an investment portfolio to the markets

The stock market is driven by people, not machines, not earnings, the news or some other variable. All of these factors may be part of what somebody uses to make a decision but ultimately the market is about investor behavior. Accordingly, there are patterns and recognizing the patterns is the key to superior strategy and trade execution. It works.

Here are some keys to investment success that we'd like to see everybody work with.

• Timing matters. If it didn't everybody would be rich already.

• It's all about math. It's not subjective, it's not personal.

• Risk management is the most important strategy at all times. Our observation is many retail investors (individuals) are taking far too much unnecessary risk and often don't realize it.

You can do it too. See how.

How you knew Bitcoin would go lower

Leading cryptocurrency Bitcoin has hit a new low plunging 70% in just six months. Unfortunately many eager investors have suffered big losses but there's good news. Here's how you could have predicted cryptocurrency markets were in a significant correction.

It's easy to say a market or security, like a stock, with a big long term gain would suffer a huge loss. But that's usually fear talking rather than the recognition of how markets play out. Investments with big gains are how you make money but when the tide turns you need to know when to get out.

All markets are the same!

Behaviors in a market or security provide far more information than alternatives. After all, how money is moving around determines the net impact in the price trend. But how would you have known to avoid cryptocurrency markets like Bitcoin and Ethereum?

Using the price chart below let's look at Bitcoin and see how indicators, in real time, were a tip off to timing transactions with real money.

The peak is at nearly $20,000 U.S. in December 2017. You don't know that's the peak so let's work through what happens after keeping in mind the market had been performing well above average, out pacing alternatives including the U.S. stock market.

See how the price dropped, in a straight line with no bounce, from the peak to just under $12,000. Some would argue that this is a bull market correction and not a bear market correction as strong markets can have quick sell offs only to recover and march to new highs. But large declines, by nature, are a warning shot as the ability of a market to recover is severely tested. To get back to the high is a gain of approx. 65%. That's a lot!

As the market attempts to rally from the $12K low it stalls at approx. $16K, then drops and retests the low. That's strike two on the market as this is the second significant setback. Think about market sentiment, in real time, as investors are unable to profit or counter losses. But the market ultimately rallies from the $12K low again jumping over $16K getting to about $17K. That price isn't much better but it puts the market in position to advance the recovery and eventually test the old high. The problem is it fails. Notice how price drops back below $16K. Strike three!

Then it gets worse. Early in 2018 the market undercuts the $12K low and it does so in a hurry. It also fails to hold the recovery a few weeks later. The rout is on!

Interestingly, the sell signal came early in the December 2017 decline that started the bear market in cryptocurrencies. It was there in real time!

For indications on market behaviors use the real time research based on decades of analysis of all financial markets.