Remember to Choose the Right Stock Symbol when Trading News Events

Jan 16, 2014: 1:39 PM CST

As a trader, we make progress along our trading journey either by making a mistake and learning from it (where the lesson ‘sticks’) or else we learn from other traders’ mistakes and try not to repeat their errors.

A recent article in the New York Times blog section reminds us of one of these valuable trading lessons:  Remember to type in the correct symbol when placing a quick, news-driven trade.

Entitled “A Case of Mistaken Identity Sends a Worthless Stock Soaring,” William Alden tells the story of how shares of Nestor (symbol NEST) – a dormant penny stock company that once sold traffic enforcement to local governments – leaped 1,000% when trigger-happy traders mistook its symbol for the actual company Nest Labs which was acquired by Google (GOOG).  Nest Labs is a private company without a stock symbol to trade.

Nestor NEST

It’s not the first time this “case of mistaken identify” has happened, and it won’t be the last.  Alden also reminds us of the fiasco when shares of penny stock Tweeter Home Entertainment surged almost 700% on the day of the actual Twitter IPO (symbol TWTR).

As traders, we have similar experiences where excitement trumps sound judgment; these are obvious errors but they do happen.

More commonly, a trader will type in a particular symbol into the order execution screen but mistakenly type in the wrong symbol, even if it differs by a single letter.

I’ve made that mistake more than once during volatile markets early in my trading career when I was focused on trading low-priced momentum stocks, particularly after a news event or earnings.  It happens to just about everyone.

Once again, we learn by making mistakes ourselves (and often losing money… though not always) or by learning from the experiences of other traders.

During the hype and excitement of a volatile price movement – or sudden news event – be sure take a couple of seconds to make sure that the stock symbol you are about to trade is actually the symbol you intend to trade.

Corey

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