Setup price definition

What is an installation price?

A setup price is an investor’s predetermined entry price that, once broken, initiates a position at that specific security, be it a stock, bond, currency, or any other type of financial instrument. It is also known as an entry point.

Key takeaways

  • A setup price refers to the price at which an investor initiates a new position or strategy.
  • The installation price, or entry point, can be arrived at in a number of ways, including technical or fundamental measures, or a combination of both.
  • Once the setup price is triggered, the trader will have an open position on that asset.
  • A good entry point is usually the first step to a successful trade.

Understanding an installation price

The installation price can be determined based on technical or fundamental factors, as well as the personal opinion of the merchant, and can be placed at any price the merchant chooses. Typically, the setup price is placed above a key resistance or below a key support, but this is not set in stone. This is done to confirm that the price has, in fact, made a significant breakout, increasing the likelihood that the prevailing market trend will continue.

Once the setup price is triggered, the trader will have an open position on that asset. This may involve a short of a security, if you think the price will go down, or a long, if you expect a bullish move.

For example, if your analysis dictates that you should look for the price of a stock to exceed $ 25 before buying, then it might be better to place the initial price at $ 25.25 rather than buy as soon as $ 25 is reached. Price is important, volume, volatility and many other factors that affect price movements must also be taken into account.

Determining an entry point and an exit point in advance is important to maximize returns. Investors should ensure that there is sufficient distance between the entry point and the exit point to allow for a risk-reward ratio conducive to sustained portfolio growth.

Set price and limit orders

Using a limit order to take action on a set price is an easy way to achieve an investor’s intended goal. Limit orders are used when an investor wishes to restrict or “limit” the price paid (or received) for a security. This is done by specifying the maximum price at which a share will be bought (or the minimum price at which it will be bought or sold). Once the price reaches the “limit”, the order is normally filled at that price (or better) if there is sufficient trading volume at that level. In lightly traded editions, you may receive a “partial fill”, which means that only part of your order was executed at the limit price. The biggest risk of limiting orders is that they are partially filled or not filled at all.

As an example of how fixed prices and limit orders work together, consider that Tech Company A is trading at $ 31 and you want to buy stock at a fixed price of $ 29. An investor may regret this decision if Tech Firm A trades at $ 29.25, but then ramps up, leaving the order unfilled. Or, it could trade up to $ 29, but only for a small number of shares; If your limit order is behind other limit orders at the same price, those orders must be completed before yours, and by that time the price may have risen again.

When using limit orders, it may be wise to wait for the price to get close to the limit you want to pay before placing the order. One trick worth considering is the use of “weirdo” limits. Most investors set limits that end in the digits zero or five, for example, buy at $ 25.10 or sell at $ 30.50. Consequently, limit orders tend to cluster around certain price points, making it difficult to fill as limit orders at the same price are executed by time priority.

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Mark Holland

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