One of the things we aim to do with our Wanderer Financial newsletter is make it as easy as possible for everyone to understand our stock trading strategies and to participate along with us with through their own trades. We realize that for some, this may be their first real foray into stock trading outside of managing a 401k, or buying mutual funds for their IRA. We’ve put together a simple tutorial to help you make your first stock trade or ETF purchase.
First, let’s cover the basic vocabulary:
Target: The price in which we think the stock has a high probability of reaching based on the current charts. We may or may not take profits there, but we expect the price to get there.
Stop: A stop-loss order will help us limit our losses. It protects our portfolio from excessive losses. If the market price of the stock reaches or crosses through the Stop price, our order is then sent to the exchange as a market order. (Note: Sell-Stop, Stop Price, and Sell-Stop Order all refer to the same thing.)
An Example of How to Buy a Stock/ETF using OptionsHouse.
Let’s say you receive an e-mail from us that says: Trade Alert—DGLD Bought at $44.95, Target $48.00, Stop @ $44.50
With your OptionsHouse account open, click Trading, then simply bring up a quote of DGLD. Next, click the TRADE button in the upper right of your screen.
That will bring up the ORDER TICKET, which is where you will click Buy, Choose a Quantity of shares, and enter a Limit Price. You can adjust the price a couple pennies in order to ensure a fill, but you don’t want to chase the trade if it has already moved too far away. Please note that we very specifically choose our entry price, and if you pay too much you will throw off the reward/risk ratio. It’s better to simply miss a trade than to chase it.
Once you have entered everything correctly, click Preview. This will bring up the Order Preview screen. Double check one more time that the order is correct. New traders often make mistakes in their order entry. This is your chance to spot it before it costs you money. Click Send, and you’re done. You’ll then want to check your position to ensure that your order has been filled (though you should see a pop-up screen when that happens).
How to Place a Sell Order and a Protective Sell Stop Order in OptionsHouse.
OptionsHouse does a great job of allowing you to set your sell orders. First, in the Positions screen, click anywhere on your DGLD position and click CLOSE.
Ensure that Sell and the correct number of shares are selected, then under Price Type choose OCO Stop. (OCO Stop means when one order fills it cancels the other.)
The screen will then change to have you enter two sell orders. One is to sell at a higher price (our target – or profit price), and one is a sell stop at a lower price (our stop – or sell price used to protect us from excessive losses). In the first box enter the Limit Price that we have given as the Target Price, $48.00. In the second box enter the Stop Trigger, which is the price we have listed in the Trade Alert as the Stop, $44.50. Under Duration you can change from Day to GTC (good ’til canceled). Click Preview.
In the Order Preview screen ensure that everything is correct, and click SEND.
An Example of How to Buy a Stock/ETF using Vanguard
Vanguard is one of those brokerages that charge a little more and offer a lot less, as far as trading goes. Though I suspect that a lot of you, like me, have some sort of retirement account in Vanguard or a similar brokerage, so I’ll go through how to trade a stock/ETF here as well.
Let’s say you receive an e-mail from us that says: Trade Alert—DGLD Bought at $44.85, Target $49.00, Stop @ $44.50
Bring up your brokerage account (note: some accounts are Mutual Fund only accounts, in which case you’ll need to contact the brokerage to switch to a brokerage account). Click Buy and Sell, then Trade stocks and listed securities.
The trade screen will have you choose Buy or Sell, then the symbol, number of shares, and then the order type. I almost always use a limit order and fill in the Limit Price I am willing to pay. With some trades it isn’t really necessary because the difference between the bid and the ask might only be one penny, but I still like to put a Limit Price on it to avoid getting any sort of surprisingly bad fill price (especially with these old school brokerages whose systems seem to move at a glacial pace). Click Continue.
Next up is the Review Order page. Double check that your order is correct. Don’t rush this step. Take your time and make sure it’s right. It’s just as likely the trade will move your way further in those few extra seconds as it is it will move away from you. Click Submit, and you’re done. Return to your account overview page and ensure that your order has gotten filled.
How to Place a Sell Stop Order in Vanguard
Now that you own 200 shares of DGLD, you want to place your sell stop. Unfortunately, Vanguard doesn’t offer OCO (one cancels other) orders, that I know of. In this case, I’d place the Sell Stop order, and not the Sell order for the target price. We’re more concerned with protecting our trade in the early stages. Later, as the trade is moving our way and getting closer to the target price you could make the switch.
On the Account Overview page click Sell next to the DGLD listing, or similar to the buy, click Trade Stocks and Listed Securities again. Click Sell, enter the symbol, number of shares, and then choose the Order Type, Stop. You’ll then be asked for a stop price. Enter the price listed in the Trade Alert, $44.50. Then change the duration to 60-day (Vanguard limits it to 60). This will ensure your order remains open for sixty days whether or not you ever look at it again during that time. Click Continue.
Double check everything again, and click Submit.
You’re done. You’ve bought your DGLD shares and placed a sell stop to protect you in the event that the stock drops when you aren’t watching it. You’ll need to monitor the trade somewhat to place your sell order at $49.00 when the time comes.
That’s all there is to it. I hope that makes you feel a little bit less nervous about placing a trade. 100% of the trades we make at Wanderer Financial are this simple to execute.