So you just heard about the stock market thing, and you want to buy some stocks. But hey, how do you do that? I see all these different order types – limit, stop limit, market; what do they all mean? Let’s talk about it in our guide to stock trading. The more you research, the more you’re going to find about trading. And there’s a lot to trading as a newbie. Once you figure out what type of trader you want to be, then you can narrow down and focus on what you need to know to be a good trader.
How Do I Teach Myself to Trade Stocks?
When you’re new to trading you want a guide to stock trading to help you know where to start. Especially if you’re trying to teach yourself. When you start trading, it can be pretty overwhelming.
There are so many different YouTube videos you can watch. How do you know you’re watching someone who’s giving you the best information?
Do you know where to start? How about what broker to look at? Then it’s all about what type of trader you’re going to be. Are you a fundamental or technical trader?
Again, don’t get overwhelmed because there is a lot of things to consider when learning how to trade. We’re here with our guide to stock trading so you know what to think about and where to start.
Step 1: Choose and Open an Online Brokerage Account
Before you even run out and buy fancy equipment, you need to take an initial step: Sign up for a brokerage. And not just any brokerage, an online one. Please, don’t run down to your local bank or something ridiculous like that. I promise you will lose any profits you squeeze out through crazy commission fees. As far as online brokerages go, Bullish Bears have extensive reviews on their blog here. So, that’s step 1; choose and open an online brokerage account.
Once your account is approved and funded, you’re off to the races. As long as you have some cash you’re willing and able to use, you’ll be faced with a ton of different choices. What I mean by choices are all the different order types you can make; how to buy, how to sell, etc. Luckily, I will break them down one by one in this guide to stock trading.
Let’s get started!
Step 2: Understand Order Types
In this guide to stock trading, we’re going to learn more about order types. There are, in fact, quite a few. It’s not just buy and sell. There are different buy orders you can place. Some are going to be better than others for you.
Don’t you want to get the most bang for your buck? Who doesn’t? Therefore, you need to know and understand the types of orders you can place. And how you can get better entries, protection, and exits.
A Guide to Stock Trading With Market Orders
For argument’s sake, let’s talk about penny stock BBB, currently trading at $5.00. Now the first type of order you may see is what we call a market order. So if you select that option, what does it mean? That means I want it, and I want it now at ANY price. Not tomorrow, not next week, but now. Sound dangers?
That’s because it is or at least can be. You’re going to pay the price the market gives you. What if the price spikes to $5.50 a split second before you hit the buy button? With a market order, you’re the proud new owner of shares at $5.50 is what you’re paying. Worse yet, what if the price tanks to $2.40? Without even getting a chance to set a stop-loss order, you’re in a losing position.
Market orders, especially in the volatile penny stock market, can get you in a lot of trouble. But also, at the same time, they do have their time and place in the market. I don’t want to say they are all bad but tread carefully. Our guide to stock trading is here to help you know what a market order is.
A Guide to Stock Trading With Limit Orders
All strategies are different but more times than not; THIS is the order type you want to be using. A limit order essentially say’s “I want it….BUT…” Notice the key difference here, the word but. The but indicates I really do want it, but I’m only willing to pay a specific price for it.
So again, if the stock is trading at $5 and you think I really do want in, but I don’t want to get in at $5. I’m only willing to pay $4.50. Once in your online brokerage, you would select limit order which automatically triggers the but question; but what? In this case, you would put in a limit order to buy at $4.50.
All that means is that you will not get any shares of AAA unless the price drops to $4.50. Likewise, if the price drops down to $4.51, your order still won’t get filled, and you still don’t own any shares. Reading this guide to stock trading might help you realize this is the type of order you want to place.
How Do Beginners Buy Stocks?
First you need a good broker. Next you need to open a paper trading account and practice. You HAVE to know how to place these orders we’ve been talking about. Plus you absolutely need to know support and resistance.
If you know don’t know how to draw support and resistance levels, then you’re never going to place the best trades. You won’t know where a base is or where a top is. In fact, most new traders don’t know how to find support and resistance because they want to follow people’s trades instead.
Then they end up blowing up their trading account and quitting. That’s why we want to stress the importance of practice trading in our guide to stock trading. The more you practice, the better you’ll be.
Guide to Stock Trading on Stop Losses
Basically a stop loss means, “I want out.” A stop-loss only pertains to you if you’ve entered with a market or limit order. Maybe it goes without saying, but you need to be in the market before triggering a stop loss. And it’s a bit deceiving as you could perceive it as stopping a loss, but it doesn’t pertain to only losing trades.
In pretty much any situation, they help take you out of a position at a profit. A wise trader uses a stop loss to lock in profits as a stock rises in price. Check out our fantastic blog on how to place a stop loss order as you read this more in this guide to stock trading.
Market Stop Loss Order
Within the stop loss family, we have two types: A market stop and a limit stop. Essentially a market order, a market stop means I want out of the trade NOW. Using our example above, you bought at $4.50, but you’re only willing to lose $.25. Using a sell market stop order, you would enter $4.25 in the order box.
Once the price hits $4.25, your broker attempts to execute your sell order. Notice how I say “attempts.” What if the price suddenly drops off a cliff and nosedives to $.25, falling way past your market execution price of $4.25? Because you set a market order, your shares get unloaded at any market price. It’s not a guarantee of a $4.25 execution; it’s a guarantee your broker will get you out of the situation.
Limit Stop Loss Order
On the flip side is the limit stop order, which triggers your stop loss number but stops selling shares if additional losses occur. Sounds confusing doesn’t it? Let me try to break it down using the example above.
In this scenario, you got filled at $4.50, thinking the price would go up. However, since you’re only willing to take a loss of $.25, you set a stop-loss order at $4.25. Will your sell order get executed if the price tanks below $4.25?
Nope, because your sell order is placed at $4.25 because you’re only willing to take a $.25 loss. And the worst part? You’re left holding the bag with stocks priced at $.25; you might as well burn your money.
Don’t think you’re immune to this situation; this can and does happen. Who thought a guide to stock trading could be so complicated?
Needless to say, a limit stop loss in this situation is precarious as the price could crash right through your order. Even though you can’t predict when washes happen as the causes are many – news, economic reports, etc., a market stop loss might have been a better option.
I’m not saying never to use them, but I struggle to see their value or when it would be wise to use them.
Now there is a whole other family of orders I’m not going to get into today. But, as you advance in the trading world with Bullish Bears, you will learn their value, and they will become indispensable.
Guide to Stock Trading: Breakdown of Order Types
Market Order – “I want it now at any price; just give it to me now.”
Limit Order – “I want it, but…..”
Stop-Loss – “I want out.”
Market Stop Loss – “I want out now at my specific price.”
Limit Stop Loss – “I want out only at my specific price, no lower.”
Probably the most common question on the tip of every new trader’s tongue is, “Now that I am ready to trade, how do I find great stocks to trade?” The Bullish Bears stock training courses and trade rooms answer that question. Join us today. Save yourself the pain, protect yourself on the downside and know which orders to use.