Correct way of using "Buy-stop-limit" to purchase stocks when price goes below a value

Question

I see everywhere explanations of "sell-stop-limit" (to sell your stocks) and I found an explanation of "buy-stop-limit" for when you want to buy stocks once the value starts rising. However I don't understand how to use it when I'm looking to buy after the price went down.

For example, let's say a stock valued at 102$ on the market that I want to buy when it reaches 100$. My bank requires both "stop" AND "limit" values when I use the buy-stop function. So I suppose I should set stop=98$ but I don't know what impact will the limit value have.

• With stop=100$ and limit=101$

  Will it trigger once it goes below 100$ but not buy if it goes back up above 101$ when order passes ?

• With stop=100$ and limit=98$

  Will it trigger once it goes below 100$ but not buy if it reached less than 98$ when order passes ?

• Or am I completely wrong and a buy-stop value only trigger on the way up (from 99.99$ to 100$, but not from 100.01$ to 100$)?

Answer 1

A buy stop order is an order where you buy if price moves above the current price. Here's an example.

If XYZ is $102 and you want to buy it at $100 then just place a limit order.

Conditional orders can be used for more complex orders, if your broker offers them.

Answer 2

A limit defines the most you want to pay for the stock. If there is a stock that's at $102 and you are willing to buy it for $100 or less, then a plain limit order will do that.

But is sounds like you want to buy at $100 only if it goes below $100 and comes back up which is not common.

For a buy, a "stop" defines a trigger price that the stock must go above to execute. They're traditionally called "stop-loss" orders, and more commonly used to sell meaning you want to "stop the bleeding" and sell when the price hits a price reflecting the most you want to lose. For a buy it would be used to stop losses on a short position, meaning you want to sell if the price goes above a certain amount (stopping your losses on a short).

There's not (to my knowledge) a common order type to trigger a buy if a stock rises. Why would you want to but it at a higher price that you can now?

You may need to see if your broker supports custom conditional orders to do what you want.