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Conditional Orders: Why Use Them?

Conditional Orders: Why Use Them?

Key Points
  • Conditional orders can submit an order when a specific condition is met.

  • Conditional orders on StreetSmart Edge have just gotten better.

  • Conditional orders may be submitted unexpectedly when stock prices gap up or down more than anticipated.

I like to think that I am on top of my trading portfolio.  However, with a full time job and a family to raise, I find I do not have the ability to monitor my positions throughout the day.  No matter what your situation, we all find ourselves stepping away from time to time and conditional orders can help.  Conditional orders can be established anytime and allow you to submit an order that is only sent to the exchange when your specified condition(s) are reached. Say you wanted to:

  1. Place a trailing stop on a stock you own after it hit your target
  2. Establish a buy order on a stock that has broken resistance and looks like it might close above that level
  3. Create an order to buy a stock that has crossed above (new) resistance after breaking support

Or

  1. Submit multiple orders based on the price action of a single security or index

Conditional orders will monitor the market for you and submit the order regardless of whether you are logged in.  Until they trigger these orders are held at Schwab until the conditions are met and only then is the order sent to the exchanges.

Let’s take the scenario one above.  Say you own BA and want to initiate a trailing stop on it once you hit your price target of $325.  To do this, you would go to the All-in-One trade ticket and select conditional orders tab or by clicking on the ‘+’ sign to the right of the tabs and select conditional orders. 

1) Place a trailing stop on a stock you own after it hit your target

 Place a trailing stop on a stock you own after it hit your target

Review order

Review order

If you are satisfied with the order: 

2) Establish a buy order on a stock that has broken resistance and looks like it might close above that level

Establish a buy order on a stock that has broken resistance and looks like it might close above that level

Review order

Review order

If you are satisfied with the order:

3) Create an order to buy a stock that has crossed above (new) resistance after breaking support

For those of you trying to imagine what this might look like, see image below.  1. Imagine you see a stock that looks like it’s trying to move up.  It’s broken through resistance once, but it’s hitting headwinds.  2. It breaks its new support created by the previous resistance level.  You’d be willing to buy the stock if it managed to break through resistance 3.(recent support) once again. 

This one can actually be done two ways:

This conditional order can actually be placed one of two ways.

You could have a condition that identifies break of support and then enter a buy-stop:

You could have a condition that identifies break of support and then enter a buy-stop.

OR: 

You could enter multiple conditions to accomplish something similar.  In addition, by using conditional orders, you could include a timestamp which could help you pinpoint a close above resistance near market close.   

Submit multiple orders based on the price action of a single security or index

As in all the other examples above, you should review your order carefully before placing. 

4. Submit multiple orders based on the price action of a single security or index

Submit multiple orders based on the price action of a single security or index

Please note, the scenarios above are just examples of what conditional orders can do.  It is up to you to create the conditional orders that best meet your trading needs and situation. 

StreetSmart Edge can accommodate:

  • Conditional orders that can last up to 180 days.
  • Conditional orders allow you to specify BID, ASK, Trade Price, Volume and Time.  You can set up to three conditions using AND/OR/THEN logic.
  • All buy and sell order types – Market, Limit, Stop, Stop Limit, and Trailing Stop.
  • Conditional orders are not available during extended hours sessions.
  • Conditional orders must pass all trade edits before being submitted.
  • Conditional order to close a position will be reduced to the amount held if necessary.

While conditional orders are very powerful, they may not behave as expected when the market gaps up or down or if it’s a particularly fast moving market.  For example – consider a situation where you set up a conditional order to buy a stock if it broke a resistance level of say, $100, and the stock gaps up overnight opening at $105:

Scenario 1: If your conditional order was set up to enter a market order, you’d probably get a fill close to the open price of $105, well above your original expected fill price near $100. 

Scenario 2: If your conditional order was set up to enter a limit order at $100.50, a limit order would be placed but would not be filled unless the price dropped to dropped to your limit price.

The same goes for gap downs.  So it is important to think through the what-if scenarios when entering a conditional order.  If you would not be happy with the outcome if a stock gaps up or down, you may want to consider another strategy or limiting the time that a conditional order is active. One possible way to limit the time is to set up your conditional order for the current day only and re-activating your order when you log in the following day.

It is also important to monitor your conditional orders and make sure that they continue to make sense with your overall strategy over time.  There is a tendency to set it and forget it when it comes to conditional orders, but like any other standing order, it’s good to review them regularly.  Also know that StreetSmart Edge allows you to quickly activate and deactivate these orders, making them easy to manage. 

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For the sake of simplicity, the examples in this presentation do not take into consideration commissions and other transaction fees, tax considerations, or margin requirements, which are factors that may significantly affect the economic consequences of strategies displayed. Please contact a tax advisor for the tax implications involved in these strategies.

Past performance is no indication (or "guarantee") of future results. The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice.

The information presented does not consider your particular investment objectives or financial situation, and does not make personalized recommendations. Any opinions expressed herein are subject to change without notice. Supporting documentation for any claims or statistical information is available upon request.

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 are not intended to be reflective of results you can expect to achieve.

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