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What is the interest of any buyer (or seller) of shares to give a long-lasting buy (or sell) order?

I will give an example. Let's say I own shares, currently priced at $10, of a pharmaceutical startup that develop a new drug. I plan to sell some of those stocks in case the stock raises, for example above $12. I have two options:

  1. A long-lasting sell order at $12; but in that case I'm guaranteed to never sell above that price.
  2. To wait until the price goes up, and then at that point to give a sell order.

In the case of a positive, sudden and unexpected event (for example, a very promising result from a drug trial, public takeover, etc), the share price could boldly go up, for example up to $20. In option 1, I earn $12. In option 2, I earn $20. (This reasoning also work in reverse, with unexpected bad news.)

But as far as I can see, there are always many long-lasting orders in any stock exchange "waiting queue". I understand that the stock market mechanism rely on having an order queue to fix a price; but for me placing an order that will last more than a few minutes long does not really make sense, as you risk missing an important information in this time window.

So, what's the point, and who is doing this?

  • It makes a lot more sense when paired with something like fundamental analysis. If you believe a stock ought to be valued at $12 (or only a little above), but it is currently less than that, then putting in a long-term offer to sell at $12 makes sense because if it hits that you think it ought not go higher (if everyone involved was rational, etc.). Any higher and it is overvalued, aka "a sucker's bet". The problem is that you have limited upside potential ($2 profit per share at max), but far less limited downside potential (could go to $0). Rough situation to win long-term. – BrianH Jul 27 at 22:09
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You miss a 3rd scenario - what if the price bumps up to $12.05, and then drops back down to $11.50? If you wait to do this yourself, and don't have a standing sell order, you could likely miss the window of opportunity.

But deeper than that, let's address the hidden psychology in what you're suggesting:

"If I personally see the price rise quickly to $13, I will know that the price could keep rising to $20, and therefore I should wait until it hits $20, because I will watch the charts and know where the price will be." - This is a fallacy. So called 'technical analysis', which relies on making trades based on the current charting of a stock's price, is not universally admired. Personally, I feel it is a pair of rose-coloured glasses over a gambling problem.

Be careful that you are not tricking yourself that you know more than you do about the stock market, or you could end up burned.

  • Fair answer. But for your 3rd scenario, would an automatic alarm on a price target not be better? In the case of my pharmaceutical startup, the probability of a very sudden big raise (or fall) is high, for example with clinical results or FDA approval. Even for large companies, sudden unexpected external news can happen: public offering, fraud... (I'm not talking about technical analysis at all here, but unexpected news strongly affecting a company value). – Laurent Grégoire Jul 26 at 13:47
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    @LaurentGrégoire It would only be 'better' in the sense that it would allow you the illusion of control so that you could watch the price with your finger over the 'sell' button, pretending that you knew which direction it would go. I don't mean to be tooooo glib about this but make sure you understand your limitations and that it is easy for our brains to trick us into recognizing 'patterns' that do not exist. – Grade 'Eh' Bacon Jul 26 at 13:52
  • I'm not talking at all about recognizing patterns in stock fluctuation here (I do not trust them at all too). I'm just saying this because recently a stock I own took 30% up in a matter of seconds, just because of a public offering. In that particular case, it's way better to wait to know at which price the public offering is made before selling. Same when a fraud is found, better wait before buying too high... – Laurent Grégoire Jul 26 at 13:58
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    Automatic alarms on a price target might be better if you can access them. What happens if you have a full time job and you can't watch your stock during the day? Many times I have seen a stock rise 5-10 points or more on an earnings announcement or surprise new, only to see the gain gone shortly thereafter. Last month, a small biotech company gained 25% on an FDA approval, only to drop nearly 40% the next day. That's where GTC orders succeed. – Bob Baerker Jul 26 at 15:37
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FWIW, this is called a Good-Til-Cancelled Order. It lasts until the order is completed or cancelled. However, brokerage firms tend to limit the length of time that a GTC order can be open.

If share price is $10 and there's the potential for a very promising result from a drug trial or a public takeover, why would you ever put in a sell order at $12 if you thought that price could hit $20 ?

As I see it, you ask yourself today, at what price would I be happy to sell? With the stock at $10, would you be happy to walk away in short order with $12? If yes, place a GTC order at $12. Not enough? Place it at a price that amuses you. $14? $16? If you want the grand slam home run, be a buy & hold investor and avoid the GTC order. The choice involves a higher probability of a smaller gain versus a lower probability of a larger gain. Are ya feeling lucky?

Plan B? Split your order. Assuming acceptable prices are $12 and $14, place one GTC to sell half your position at $12 and another GTC order to sell the remaining shares at $14. It's also possible that the first order executes at $12 and share price then drops and you have a booked gain and you can buy back the shares sold.

  • Let's say I would be happy, given the current situation, to sell at $12. I can place a GTC order at $12 for many days. But in the meantime there can be a public offering at $15 or more. Would it not be always wiser to wait until the share price is at $12+ before placing the order? The probability to miss a $12+ temporary spike is rather low, compared to the risk of loosing a lot in case of a large unexpected raise (which happen rather often). I'm talking about long-lasting orders here, lasting many days. – Laurent Grégoire Jul 26 at 14:19
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    If you'd be happy with $12 then why are you talking about $15? At some point you have choose an acceptable yet unknown future price. I have a friend who ferreted out a promising tech firm. He bought 6 figures with an average cost of $5. It spiked to $14+ on a new contract - he sold nothing, believing that it was going to $50. In short order, it was back to $6. Then it's would, coulda, shoulda. Me? I'm a bird in the hand kinda guy rather than a pie in the sky type. I sold my much smaller position at $13 and have no regrets? Him? 10 years later he's still kicking himself. Which one are you? – Bob Baerker Jul 26 at 14:45
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    There's no misunderstanding. $12 is unacceptable to you because you want $15 so that means you sit tight. This option (2) business is nonsense ("To wait until the price goes up, and then at that point to give a sell order). When that happens, today becomes tomorrow and price is no longer $10. It's now $12. Today becomes tomorrow and then you can argue against placing a GTC order at $14 instead of waiting until $17 is hit. It's a never ending loop until you decide what sell price is acceptable and live with that decision. At this point, why continue? GTC is not for you. For others, it is. – Bob Baerker Jul 26 at 15:19
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    This is the key answer, especially "ask yourself today, at what price would I be happy to sell?" – Grade 'Eh' Bacon Jul 26 at 15:39
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    What unknown price in the future would make you happy today? Yes, it's that simple. No tea leaves. No charts. No maybe this, maybe that. I don't use GTC orders anymore but I don't dismiss their usefulness for those whose circumstances warrant them. – Bob Baerker Jul 26 at 16:03
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The flaw in your logic is the loose usage of the idea of "missing important information". It's reasonable to expect that new information about the company itself may affect the supply and demand of its stock, resulting in a price change. This is not so reasonable when the new information is gleaned purely from the previous price change of the stock.

Nowadays, many market players use extremely sophisticated price-change-analysis which predicts, based on a momentary price increase to $12, what's going to happen next. If your price-change-analysis is better than theirs, or at least better than the price-change-analysis of the market as a whole, then you may indeed prefer to avoid good-til-cancelled-orders, and instead buy/sell/hold based on your analysis, rinse, repeat and pocket a huge amount of gains. If, on the other hand, your price-change-analysis is basically "it went up to $12; maybe it's going to go up more," then your buy/sell/hold decisions based on this analysis are likely to have poor results on average, because this analysis is actually less sophisticated than the price-change-analysis of the market as a whole.

  • I totally agree with your comment, that's exactly the point of my question... I'm not saying I can get useful information from the some stock price analysis; I'm just saying that if an important information do appear during the lifetime of a GTC order (such as a fraud, clinical result, gold mine found etc...) then the real-world assumptions I used for my GTC "fair" price are strongly outdated and need revision, which I cannot do (the order is executed before I can react). In that specific cases, having a GTC pending can potentially make loose you a lot of money. – Laurent Grégoire Jul 30 at 14:54
  • On the other hand, if you suppose that you cannot react fast enough to cancel the GTC when real-world information appears, then it would also be logical to suppose that you cannot react fast enough to place a new buy/sell order at the moment the price changes to the price you want. In this case, not having a GTC pending can potentially make you lose a lot of money. – krubo Aug 2 at 3:35
  • When a fraud is found, or a new promising drug is approved by the FDA, I think I have enough time to react after the news :) My initial question was related to those kind of events: unexpected but having long-lasting effects. – Laurent Grégoire Aug 8 at 15:33

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