Show pageOld revisionsBacklinksBack to top This page is read only. You can view the source, but not change it. Ask your administrator if you think this is wrong. ====== Day Order ====== ===== The 30-Second Summary ===== * **The Bottom Line:** **A Day Order is an instruction to your broker that automatically cancels your unexecuted buy or sell order at the end of the trading day, acting as a daily disciplinary tool to ensure you only transact at a price you've deemed attractive //today//.** * **Key Takeaways:** * **What it is:** A temporary instruction to buy or sell a security that is only valid for a single trading session. * **Why it matters:** It enforces patience and prevents you from accidentally paying yesterday's price for a stock after new information has emerged overnight. It's a core tool for disciplined [[price_vs_value|price-sensitive]] execution. * **How to use it:** You combine it with a `[[limit_order]]` to specify the exact price you're willing to pay, ensuring the transaction only happens if your conditions are met within that day. ===== What is a Day Order? A Plain English Definition ===== Imagine you're at a farmer's market, and your favorite apple vendor has a sign that reads: "Today's Special: Honeycrisp Apples, $2 per pound. Price valid until we close at 5 PM." You decide that $2 is a fair price. You're willing to buy, but only at that price, and only today. You wouldn't want to show up tomorrow and be forced to buy them if the price has jumped to $4 because of a sudden apple shortage. A Day Order works exactly like that "Today's Special" sign. It's a command you give your broker that says, "I want to buy (or sell) this specific stock, but //only// at this specific price, and //only// for the duration of today's trading session." If the market offers you your price before the closing bell, your broker executes the trade. If the bell rings and your price was never met, the order simply vanishes. It's automatically canceled, no strings attached. You are free to re-evaluate the situation tomorrow with fresh eyes and new information. This is the most common and often the default "time in force" option when you place an order. Its main purpose is to give you precise, short-term control over your trade execution. > //"The stock market is a device for transferring money from the impatient to the patient." - Warren Buffett// ===== Why It Matters to a Value Investor ===== While Day Orders are the bread and butter of hyperactive day traders, they serve a very different and more profound purpose for the value investor. For us, a Day Order isn't a tool for speculation; it's a tool for **enforcing discipline**. Value investing is built on a simple but powerful idea: you calculate a business's [[intrinsic_value|true worth]] and then wait patiently for the market, in one of its manic-depressive moods, to offer you a price significantly below that value. That discount is your [[margin_of_safety]]. Here’s how a Day Order supports this philosophy: * **It Forces Patience:** Let's say you've determined a company is worth $100 per share, and you're only willing to buy it at or below $75. The stock is trading at $78. A value investor places a Day Order at $75. If it doesn't hit that price today, the order expires. This forces you to reassess daily rather than leaving a "stale" order open for weeks or months, which you might forget about. It institutionalizes the act of waiting for [[mr_market]] to serve up your pitch. * **It Prevents Emotional Mistakes:** The biggest enemy of a long-term investor is emotion. By setting a Day Order based on your calm, rational analysis of a company's value, you create a firewall against the day's noise. When the market is plunging and pundits are screaming "sell," your pre-set, logical buy order might trigger, allowing you to be greedy when others are fearful. Conversely, it stops you from chasing a stock upwards in a fit of FOMO (Fear Of Missing Out). * **It Protects Against Overnight Risk:** The world doesn't stop when the stock market closes. A company could announce terrible earnings, a CEO could resign, or a major new competitor could emerge overnight. If you had an open, long-term order (like a `[[good_til_canceled_gtc_order]]`), it might execute at the opening bell at a price that is no longer a bargain based on the new information. A Day Order protects you from this by expiring each afternoon, compelling you to confirm that your investment thesis is still valid before placing a new order the next day. For a value investor, the Day Order is a simple mechanism to turn a well-researched plan into a disciplined action, without getting swept up in the market's daily drama. ===== How to Apply It in Practice ===== Applying a Day Order is a straightforward part of the trade execution process. It's not a complex calculation but a simple choice you make when placing an order. === The Method === Here is the step-by-step process a value investor would follow: - **1. Complete Your Research:** Before you even think about placing an order, you must have a clear thesis. You have analyzed a business, estimated its [[intrinsic_value]], and decided on a maximum purchase price that provides you with a sufficient [[margin_of_safety]]. - **2. Log In to Your Brokerage Account:** Navigate to the trading screen for the stock you wish to purchase. - **3. Set Up Your Order:** You will typically fill in the following fields: * **Action:** Buy (or Sell) * **Quantity:** The number of shares. * **Order Type:** Select `[[limit_order]]`. This is crucial. A limit order lets you specify the maximum price you'll pay. * **Limit Price:** Enter the price you determined in Step 1 (e.g., $75). - **4. Select "Time in Force":** This is where the Day Order comes in. You will see a dropdown menu with options like "Day," "Good 'til Canceled (GTC)," "Fill or Kill," etc. Select **"Day"** (it may also be called "Day Order" or be the default setting). - **5. Review and Submit:** Double-check all the details. You are instructing your broker to buy X shares at a price no higher than $Y, and this instruction is only valid for today's trading session. Submit the order. The order is now active. If the stock's market price falls to your limit price at any point during the day, it will execute. If not, it will be automatically purged from the system after the market closes. ===== A Practical Example ===== Let's look at two investors trying to buy shares in a hypothetical company, **"Steady Brew Coffee Co." (Ticker: SBUX)**. ((Note: This is a fictionalized example for illustrative purposes.)) * **Analysis:** You have thoroughly researched Steady Brew. You admire its brand, its consistent cash flow, and its long-term growth prospects. After a detailed analysis, you calculate its intrinsic value to be approximately **$100 per share**. * **Discipline:** You are a disciplined value investor, so you insist on a 25% margin of safety. This means your maximum buy price is **$75 per share**. * **Market Situation:** The stock is currently trading at **$78 per share**. **Your Approach (Using a Day Order):** You decide that $78 is too rich for your blood. You are only interested at $75 or less. - You log in to your brokerage account. - You place a `[[limit_order]]` to **Buy 50 shares of SBUX at a Limit Price of $75.00**. - For the "Time in Force," you select **"Day"**. **Possible Outcomes:** - **Scenario A: The Price Drops.** Mid-afternoon, some negative market news spooks investors, and the price of SBUX briefly dips to $74.90. Your order is immediately triggered and filled. You have successfully purchased 50 shares at your pre-determined bargain price. - **Scenario B: The Price Stays High.** The stock fluctuates between $77 and $79 all day, never hitting your limit. At 4:00 PM EST, the market closes. Your order is automatically canceled. You bought nothing and spent nothing. Tomorrow, you can re-evaluate and decide if you want to place the same Day Order again. You stuck to your discipline and either got the price you wanted or wisely did nothing. ===== Advantages and Limitations ===== ==== Strengths ==== * **Precision and Control:** It gives you exact control over the price and a clearly defined timeframe, preventing unwanted executions. * **Enforces Discipline:** Its daily expiration is a powerful psychological tool that forces you to stick to your valuation and prevents you from chasing a rising stock price. * **Simplicity and Safety:** It's the "cleanest" order type. There are no lingering orders to track or forget about, reducing the risk of an unexpected purchase based on old, outdated analysis. ==== Weaknesses & Common Pitfalls ==== * **Missed Opportunities:** The most significant drawback is that the stock might hit your target price the day after your order expires. This can be frustrating and can tempt investors to abandon their price discipline. A true value investor sees this not as a failure, but as part of the process of waiting for the perfect pitch. * **Requires Daily Attention (if you're aggressive):** If you are determined to buy a stock as soon as it hits your price, you may need to re-enter your Day Order each morning until it's filled, which requires consistent attention. * **Can Create a False Sense of "Doing Something":** Placing and re-placing orders can feel productive, but the real work of a value investor is in the research and patient waiting, not in the frequency of clicking the "buy" button. Don't let the process of placing orders distract you from the principles of the investment itself. ===== Related Concepts ===== * [[limit_order]]: The "what price" command, which is almost always paired with a Day Order's "how long" command. * [[good_til_canceled_gtc_order]]: The primary alternative to a Day Order, which keeps your order active for an extended period (e.g., 90 days). * [[margin_of_safety]]: The core value investing principle that determines the price you set in your limit order. * [[intrinsic_value]]: The estimate of a business's true worth, which is the foundation of your entire investment decision. * [[mr_market]]: The allegorical figure who offers you fluctuating prices each day; the Day Order is your response to his daily offer. * [[stop_loss_order]]: Another common order type used to sell a security if it falls to a certain price, also requiring a "time in force" designation. * [[patience]]: The essential investor virtue that the Day Order helps to enforce.