Buy Stop Order

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Definition of 'Buy Stop Order'

A buy stop order is an order to buy a stock at a specified price that is higher than the current market price. The order is placed with a broker, who will execute it when the stock price reaches the specified level.

Buy stop orders are used by investors who believe that a stock is undervalued and that the price is likely to rise in the future. By placing a buy stop order, the investor is able to lock in a profit if the stock price does indeed rise.

However, it is important to note that buy stop orders can also be used to limit losses. If the stock price falls below the stop price, the order will be executed and the investor will be able to sell the stock at the specified price.

Buy stop orders can be used in a variety of ways. For example, an investor may place a buy stop order at the 50-day moving average of a stock. This would allow the investor to buy the stock if it breaks above the moving average, which is often seen as a sign of strength.

Another way to use a buy stop order is to place it at a level that is above a resistance level. A resistance level is a price point at which the stock has previously had difficulty breaking through. If the stock price breaks through the resistance level, it may indicate that the stock is poised for a breakout.

Buy stop orders can be a useful tool for investors who are looking to trade stocks. However, it is important to understand the risks involved before using this type of order.

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