Don't fall into these traps Trading Stocks as a Beginner
Written By: Gen Nguyen | Read full profile
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With the whole pandemic, market crash, and unemployment I underwent in my life, I thought I’d start investing. I’m kidding. I only recently started trading stocks because it’s the only thing we talk about at the dinner table and I wanted to engage in the conversation too without being ignored.
No matter how depressing that sounded, it’s actually really good that I started investing. I’m earning money from passive income with all of the dividend stocks I bought. And I’m managing my finances so later in life when I’m looking forward to traveling or living comfortably, I won’t regret it.
Since I bought my first stock around July or August, it’s been a quotidian routine - I wake up early to check the market and then pass out again. When I do check, the market is dipping by a lot. So while I’m half asleep, I manage to login to my brokerage and place a limit order good for only the day. Because in my experience, placing a limit order as good til cancel never turns out well for me.
Here are some things I’ve learned during my 6 months investing and something that you should look out for:
1. Don’t be greedy
I’ve made this mistake a myriad of times. Microsoft (MSFT) is a good stable and growth stock. It’s especially good if you can buy it under $210. I repeat. It is a good buy under $210. If it hits below $210, whether at $208.00 or $209.50, you should think about buying a share or two (if you can afford it). But don’t be greedy.
The first time I looked into MSFT, it was around $210 and dropping. When MSFT hit below $210, I placed a limit order for around $205 because I thought it’d drop around there based on the rate it was going at. That was my first mistake: assuming that it would drop to $205 when the low for the day was around $208. You can probably guess, but it jumped back up above $210 and never went below for the rest of the day.
My second time looking at MSFT below $210, I said I wouldn’t be greedy, so I placed a limit order to $209.50… and then changed it to $209 after I saw it DROPPING. With my (inauspicious) luck, the low for that day was $209.02. Yes. Two cents. I missed buying MFST for two measly pennies because I was being a miser.
And I regret not buying MFST because it’s stock went back up to $220+. Don’t be like me. Because I didn’t want to spend two extra pennies per share, I ended up missing $10+ in gains per share.
2. Remember your good til cancel orders
Story time! Before Apple’s (APPL) split, I placed a limit order to buy 5 shares at $437 (20 shares at $109.25 after the split) good til cancel. At that time, I still had money in my account to buy. But then I started investing in Tesla (TSLA) and Shopify (SHOP) because they were volatile stocks I could buy and sell with. Is what I thought. I ended up holding a bunch of SHOP and TSLA shares because I was losing money and I wanted to lower my cost average.
Long story short, I was wanting money in my account to trade with and I forgot I had orders in the queue. As I was in the middle of an interview, I got an email notification saying my trade orders went through. That’s right. Orders. I set a limit order for SHOP and it actually dropped from $1000 to $850.
You’d think I’d be more jovial because stocks dropped AND my order was filled. But I was actually losing a lot of money and playing with margins.
3. Turn. off. margins.
So I unintentionally spent about $2000 that I didn’t have and was left with a negative balance in my account. This negative balance is what we call margins. Basically, I’m borrowing money from my brokerage to buy stocks. [insert margins vs short selling video and links to nick’s blogs on same topic if applicable]
Playing with margins is not always a good thing. Especially if you still have a negative balance because you have to pay interest on all that money you borrowed. In Charles Schwab, I’d have to pay about 8.325% on my $2000 (on a monthly basis).
Luckily I transferred more money into my account so I didn’t have to pay an extra $200 on interest.
If you don’t wanna borrow money, turn off margins.
4. BONUS: Don’t buy market order
I recently bought O at market order, hoping I’d get it for $60.56. I guess I placed the order a couple seconds too late and I ended up buying 10 shares for $60.58 each. You’re probably thinking “oh no that’s okay. It’s only $0.20 and you did say not to be greedy.” Well, no, I wouldn’t mind… if it hadn’t dropped below $60.50 which was my original limit order.
Lesson learned, try not to buy market order because the price can change within seconds and you might actually lose money.
