Originally Posted by UCLAlanEVO
i posted this on the pharmas, but it applies to momo trades as well:
why not set a buy on stop order with a high enough stop so that it triggers on a breakout?
A buy-on-stop order is a risky method. The big drawback is the deceptive runs that often happen. You also have to have a decent gap above the current share price so that it doesn't trigger too early.
Let's take yesterday's HEB for example. The decision is on the way and you aren't a big risk taker. Therefore, you don't want to be invested in the current price for fear of Ampligen being rejected. So, you do your research and make an estimation on how high the share price could go if it were approved. Judging by many on the HEB thread and elsewhere, they feel that $6-10 is feasible. You feel confident that HEB's current trading range between 1.70-2.00 will remain the same before approval/rejection. So, you put a buy-on-stop order at 2.50. You're confident that being 50 cents above the current price is a safe enough distance, but yet conservative enough to catch a run to $6-10 and make over 100% profit still.
Problem is you run in to days like today where it will jump up to 2.57, set off your order, and then drop over 20 cents (which, when you think about it, probably happened to some people today). Now you're already down 8% and who's to say it won't drop back down to the 1.70-2.00 range again? Due to your risk factor you're left with two choices. First, sell for a loss and get out before decision time. Second, go against your preference and hold ... not knowing if it will be approved or not.
Buy-on-stops are risky imo. It's difficult to:
1) Set it at a price high enough above the current price where it won't get hit early and
2) Set it at a low enough price, still above the current price, where you still can make a decent profit