This CNBC video explains some of what happened, as well:
Important Lessons Learned
1. Those investors who placed “Good ‘Til Canceled” orders – or GTC orders – had those sell orders triggered at the market price, resulting in sells way below the actual market price. GTC orders are orders to buy or sell when the security reaches a set price. It’s in place until the investor cancels it or the trade is executed.
For example, if a stock is trading at $50 and you have a GTC order to sell at $40 and the stock drops to $38, the stock is then sold at the current price of $38 – not $40.
2. Many of the sells may have been from panic sellers who placed market orders as everyone was heading for the exits, rather than placing limit orders and controlling the price they paid. Market orders are orders to buy or sell at the current price, no matter what the price may be.
Having a limit order in place puts the control back into your hands by letting you set the price at which you’re willing to buy or sell. [How a Market’s Decline Affects ETF Trading.]
Up and down markets don’t make anyone feel good. It’s in these kinds of markets where a strategy becomes more crucial than ever. What we saw yesterday was likely fueled by a lot of emotional panic selling, and if you panicked, you got hurt. A trend following strategy can help you put your emotions aside and so you can execute trades with logic. [Why Have a Stop Loss?]
For more stories about trend following, visit our trend following category.