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Trading

Trading Up-Close: How to Sell Stock

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Transcript of the video:

Music continues throughout.

Onscreen text: Trading Up-Close

Onscreen text: How to Sell Stock

Middle-aged man speaks to the camera.

Onscreen text: Kevin Horner, Senior Manager, Trading Services Education

KEVIN: When it comes to selling, your exit strategy rules the day. There are many ways exits can go wrong, so it’s really important to build an exit strategy and stick with it.

Blue square appears on the right side of the frame. Bold white text appears in the square.

Onscreen text: Build an EXIT strategy

The word “exit” is inside a red rectangle.

KEVIN: Otherwise, you could hang onto a losing position longer than you anticipated and increase your loss. Or your timing might be off, and you miss the window for the exit you wanted. An important part of any exit strategy is the order type you choose for each trade.

Right half of screen has a dark blue background with text at the top and a small shopping cart with an oversized yellow price tag going into it.

Onscreen text:

Order types

  • Market
  • Limit
  • Stop
  • Stop-limit

KEVIN: The order types for exiting a trade are the same as for buying: market, limit, stop, and stop-limit. And the rules for when to use them are largely the same as well. Let’s look at how they work when you sell.

Small window with the speaker moves to the upper right of the screen. The word “Order types” and shopping cart icon move to the upper left. The word “Market” moves to below the window with the speaker. A chart appears in the lower left. The x-axis is labeled with the word “time,” and the y-axis is labeled with the word “price.”

There is a yellow line starting at the far left of the graph, and it moves from left to right across the graph, slowly moving in an upward direction. At the far right of the graph the line stops moving. A vertical dotted line starts from the end of the yellow line with the word “Current” at the bottom, even with the x-axis. A yellow circle appears at the end of the yellow line and a horizontal white line grows out of it from right to left. The words “sell now” appear.

Onscreen text:

Market

  • Sells at current market price
  • Generally executes immediately

KEVIN: A market order is your go-to when you want to get out of a trade as quickly as possible during standard market hours. Generally, they execute immediately, but remember, the trade-off here is price. You will receive the current price, which could be different from the last bid you saw.

The graph remains the same except that the yellow circle with the words “sell now” is replaced with a yellow dot just above the yellow price line and the words “sell at this price.”

Onscreen text:

Limit

  • Sale only executed by reaching a minimum price

End point of yellow line moves up and down as the dotted line labeled with the word “Current” moves up and down. Finally end point stops moving when it reaches the point of the yellow circle labeled with the words “sell at this price.”

KEVIN: If you’ve identified a specific price where you want to sell for profit, you can use a limit order for your exit. Remember, once the limit price is set, the sale only executes if the price trades at or above the limit price. If it doesn’t, you’ll still own the stock. But what if the trade doesn’t go your way?

Onscreen text:

Stop

  • Sale only executed by falling to a certain price
  • Always placed below current price
  • Used to limit potential losses

Yellow circle moves to below the yellow price line labeled with the words “trigger market order at this price.”

KEVIN: To manage risk, many traders use a stop order. The purpose of the stop order isn’t to prevent any loss, but rather to limit the loss to an amount that is more manageable. The sell stop order is always placed below the current stock price. Many traders will place a stop order at a price closer to a recent near-term low.

Dotted line moves horizontally from left to right even with the yellow circle.

Yellow price line moves and the vertical dotted line shortens and lengthens with it.

KEVIN: Often this is at a level from which the stock had previously bounced. But where you set your stop price depends on your own risk tolerance.

Yellow price line drops down to the yellow circle labeled with “trigger market order at this price.”

KEVIN: If the stock falls and the stop price is hit, then the stop is activated, and the order automatically becomes a market order. The shares will then sell at the next available market price, which may be below your stop price. Remember to consider your risk-reward ratio when setting your stop loss. While the sale will likely be executed, there is no guarantee on the price, and it could be lower than expected.

Onscreen text:

Stop-limit

  • Sale only executed by falling to a certain price
  • Always placed below current price
  • Used to limit potential losses

KEVIN: Now let’s look at a stop-limit order. This goes one step further, incorporating a limit price.

Yellow price line moves up and down but generally upward with the yellow circle labeled “sell at this price” below it. Then the yellow price line dips down as it moves and hits the yellow circle.

KEVIN: Just like the standard stop order, if the stock falls to your stop price, a sell order is triggered. However, the stop-limit triggers a sell limit order that will not execute for less than your specified limit price.

Blue circle appears directly below the yellow circle and is labeled with the words “but not below this price.” Solid yellow price line becomes a blue dotted line and dips sharply downward below both the yellow and blue dots. Above the price line there are the words “market closed” encircled by a blue dotted line. The blue dotted line turns back into a solid yellow line and comes back up to the blue circle labeled with the words “but not below this price.”

KEVIN: But remember, if the stock opens below both the stop and the limit, then your order will sit unfilled until the stock comes back up to the limit price you set. And there is no guarantee when, or if, it will come back to that level.

Blue square on the right side of the screen spears with the graphic of a woman in a green top sitting at a desk, looking at a computer. There is a bar graph on the monitor.

Onscreen text: Timing vs. price

KEVIN: Choosing the right type of stop order depends on what’s important to you: a speedy exit or a specific price. If price is more important, and you don’t fear further downside, you might prefer the stop-limit to the standard stop order. This series of videos is meant to challenge you to think about why and how you want to trade, and to give you an overview of the key elements in trading.

KEVIN: Thanks for watching.

Onscreen text:

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

©2021 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. (1121-1E1H)

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