Why I Suck At Trading

by Mike Holman

I’ve come to the realization that I would not make a very good stock trader. The evidence leading to this conclusion became glaringly apparent when I made my first ever stock purchases over the last couple of months. Both trades were Bank of Montreal purchased for my leveraged stock plan.

After doing a bit of research on the mechanics of buying stocks along with practicing on the trading simulator at Questrade, I was able to get comfortable with getting the real time quotes and placing an order with a limit. The limit probably wasn’t necessary since I was buying board lots of a heavily traded company, but better safe than sorry.

The other part of being on the “buy side” was waiting for a dip. I had read in many books and blogs that the best way to accumulate dividend stocks was to “buy on dips”. It seemed pretty obvious that all one had to do was wait until said dip appeared and then let the trading begin! The only problem was an an extreme lack of patience on my part. Once I got it into my head that I was going to be buying some stocks then I kept a close eye on the price in order to identify a dip at which point I would pull the trigger. However due to the feverish excitement I was in, I ended up spending way too much time at work checking the price of the stock. I’m sure my co-workers were suspicious since I was spending a lot more time glued to my computer than I normally do. After a while I decided that dip or no dip it was probably better to pay a couple of bucks too much for the stock rather than lose my job because I was checking real time quotes all day long. The other problem I had was a constant irrational fear that the price would skyrocket and if I didn’t buy right away I would never get it for that price again.

I ended up buying the first 100 shares of BMO at $71 which was after the shares had been hanging around $68 for a while because of the trading scandal. The reason I couldn’t buy when the stock was lower was because I didn’t have the account set up yet and it took a while for that to happen. For the next trade I told myself that I would wait patiently until the stock hit the very bottom (wherever that is). But history repeated itself and I ended up buying 200 shares at $68.60 which felt a lot better than $71 but of course, better deals could have been had with a little patience.

Since my plan is to hold these shares for a long time, the initial purchase price isn’t all that important but the competitive spirit in me demands that I get the best price possible. I didn’t accomplish that goal with my purchases this time but I’m hoping that next time I’ll be able to stay cool long enough to get a good deal. If not, the dividend cheques will help make up for it.

Questrade Democratic Pricing - 1 cent per share, $4.95 min / $9.95 max

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{ 12 comments… read them below or add one }

1 The Financial Blogge

As your goal is to keep those shares over the long run, I would not be to worried about market timing. In fact, your BMO stocks will probably go under $68 during the next year and will probably go back up. Fluctuations are part of the game.
However, realizing that you lack of patience is a great step in your investment plan!
Cheers,
FB.

2 MillionDollarJourney

Becoming a good stock trader does not happen over night. Do you expect to be a good stock investor overnight? How much time have you spent analyzing/studying asset allocation? Have you put the same amount of time into stock trading?

FT

3 FourPillars

Thanks FB, I believe you’re correct.

MDJ – Yes I do! :) Point well taken though about time invested.

4 Canadian Capitalist

I think you don’t have any intention of trading stocks, so you shouldn’t worry about timing your entry and exit points exactly. If it helps, it becomes easier as time goes along. In fact, there is a running joke at work that people should buy whatever I am selling (or vice versa) because the price will go up right after I sell!

5 FourPillars

CC – maybe you should start an “opposite” investment newsletter so we can take advantage of your trading powers!!

BP – You’re right about the small pool.

Mike

6 Investoid

I agree with the long-term comments above, but if you need a disciplined way to enter at specific numbers, place limit orders and don’t let them expire for long periods of time (eg. 1 month). If you have an entry point you like (say for instance, $50), then regardless of whether the stock falls through that price, you will receive the stock at a price you are comfortable with.

Just make sure to cancel any outstanding orders if material news comes out that affects your outlook on the stock.

7 Mr. Cheap

Everyone seems to have hit all the points I was going to say, but I still want to write comment, so I’ll just say “yeah!” :-).

Everything you’re saying rings true to my experiences (I think its how most people feel when they start investing), and as the above commentors say, these feelings can be dangerous, don’t let them play on your mind too much (you’ll only know the best times to buy and sell in hindsight, after you buy whether the stock goes up or down is mainly chance… focus on the dividends and ignore the day-to-day stock price if its bothering you)

8 FourPillars

Mr C – glad to hear I’m not the only one.

Investoid – that’s great advice but following it might be a problem. I’ll try it again next year and see if I can have an outstanding limit order as well as live a normal life :)

9 Thomas

One of the hardest things to do when trading is controlling your emotions. But as long as you don’t commit too much money and learn something from every experience it can be a fun hobby.

10 moneygardener

Reading your post I saw a lot of myself. Picking the bottom is extremely difficult. I usually buy early and average down again before seeing a stock go lower. I am slowly learning that I must be more patient, as the fear of a skyrocket back up is usually unfounded and does not occur, it’s more of a see-saw slow process.

11 FinancialJungle.com

By the time you retire and reflect on this experience, you’ll laugh yourself silly. $68, $70, or $71 don’t matter. What matters is you bought the stock.

12 FourPillars

MG – You are right about the skyrocket thing – ridiculous thought.

FJ – I’m sure it won’t matter in the end but it definitely was a fun experience.

Mike

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