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Money Management - Page 6

post #101 of 129
Quote:
Originally Posted by vasudel View Post
I am trying to setup the money management & have few questions. For example lets take a $25000 portfolio, if i split it into 10% max for each trade (includes investment, commision, slippage & loss). How much do i need to set my loss, is it 2% ie. $500 of my total portfolio for each trade or $50 loss for each trade ?. Thanks.
your best off going with 2% of the account not the trade. this way you will be able to play some volitile plays. if you go 2% of trade then you only get to hold the stock obviously till a 2% loss whereas the other way you would be able to hold till a 20% loss on the trade.

personally i dont think its a good idea to trade with set in stone stops that are the same every time. if you set it at 2% some stocks it can work out. some it just plain wont. stops should be derived individually every time. after approving the fundamentals you should turn to the charts to find the stop.

say you go with a 2% stop on F only because 2% is what you do every time. maybe on the charts there was an obvious support at 3% loss. it then bounces and you lost out. or maybe you go with the 20% stop and F breaks obvious support at 3% loss. you could have easily saved yourself 17%.
post #102 of 129
Quote:
Originally Posted by i_am_so_siri View Post
your best off going with 2% of the account not the trade. this way you will be able to play some volitile plays. if you go 2% of trade then you only get to hold the stock obviously till a 2% loss whereas the other way you would be able to hold till a 20% loss on the trade.

personally i dont think its a good idea to trade with set in stone stops that are the same every time. if you set it at 2% some stocks it can work out. some it just plain wont. stops should be derived individually every time. after approving the fundamentals you should turn to the charts to find the stop.

say you go with a 2% stop on F only because 2% is what you do every time. maybe on the charts there was an obvious support at 3% loss. it then bounces and you lost out. or maybe you go with the 20% stop and F breaks obvious support at 3% loss. you could have easily saved yourself 17%.
I see what you are saying, it happened to me once as it got prematurely stopped out. So is it $2500(10%) - $450(2%) = $2010 is the total investment for each trade?. And also in the worst case i will be loosing 20% of my total portfolio if all my 10 trades goes in the reverse direction. Is this a good money management?. Thanks
post #103 of 129
I sometimes have a hard time deciding where to set my stops but to me each play is different. Personally 2% is to tight for me as some stocks have a fairly big swing. 20% is way to brave for me as well.
post #104 of 129
Quote:
Originally Posted by vasudel View Post
I see what you are saying, it happened to me once as it got prematurely stopped out. So is it $2500(10%) - $450(2%) = $2010 is the total investment for each trade?. And also in the worst case i will be loosing 20% of my total portfolio if all my 10 trades goes in the reverse direction. Is this a good money management?. Thanks
If you are really only trading $2500 I would personally suggest moving over to Forex. I started there with an amount similar and now that I'm comfortable I accept larger commissions because I find it easier, however for you.......

The commissions will be dirt cheap, and you can manage it better. With that amount, in Forex, you could do 2% everytime no matter what trade and not worry about it.

That's because in Forex you decide what everything is worth. If you want to trade the wealth of the australians against the yen (AUD/JPY) you can trade it like a penny stock if you wanted to.

2500 x 2% = $50

You are looking for a 50 pip swing, and you only want to risk 20 pips.

$50/20 pips = $2.50 per pip.

Your commission costs you $2.50 round trip,

If the trade works out you make $125. If it doesn't, you lose $50. Trading is all about probabilities, and luck. The money management part is what is going to make you really good. Do this enough times, let your winners run, and you will be doubling that account in months time.


PM me if you are interested further. I do offer training. GL
post #105 of 129
Sorry, but, this thread has nothing to to with the "buying and selling" of stocks.....

Next thing we'll see is that the family grocery list will have something pertinent to this site.
post #106 of 129
Quote:
Originally Posted by Rossj711 View Post
If you are really only trading $2500 I would personally suggest moving over to Forex. I started there with an amount similar and now that I'm comfortable I accept larger commissions because I find it easier, however for you.......

The commissions will be dirt cheap, and you can manage it better. With that amount, in Forex, you could do 2% everytime no matter what trade and not worry about it.

That's because in Forex you decide what everything is worth. If you want to trade the wealth of the australians against the yen (AUD/JPY) you can trade it like a penny stock if you wanted to.

2500 x 2% = $50

You are looking for a 50 pip swing, and you only want to risk 20 pips.

$50/20 pips = $2.50 per pip.

Your commission costs you $2.50 round trip,

If the trade works out you make $125. If it doesn't, you lose $50. Trading is all about probabilities, and luck. The money management part is what is going to make you really good. Do this enough times, let your winners run, and you will be doubling that account in months time.


PM me if you are interested further. I do offer training. GL
Thanks for your suggestion, I will look into the forex. Got 1 more question, for swinging trade which one is better for a beginner with less than 25k?.

Splitting into 10% with 20% total loss
or
Splitting into 20 or 25% with 8-10% loss

my commission is $3 for each trade
thanks
post #107 of 129
Quote:
Originally Posted by vasudel View Post
Thanks for your suggestion, I will look into the forex. Got 1 more question, for swinging trade which one is better for a beginner with less than 25k?.

Splitting into 10% with 20% total loss
or
Splitting into 20 or 25% with 8-10% loss

my commission is $3 for each trade
thanks
Be more specific
post #108 of 129
Quote:
Originally Posted by Rossj711 View Post
Be more specific
My question is, for flipping stocks which of the following is efficient interms of money mgmt & loss prevention?

Splitting the money into 10%($2500) for each trade & if my all picks are bad I will loose max 20% total loss
or
Splitting the money into 20 or 25% for each trade & if my all picks are bad i will loose max 8-10% total loss

$25000 is the total account value & $3 is the commision for each transaction.

Ingeneral how much a trader use for flipping stocks ?.

Thanks
post #109 of 129
Quote:
Originally Posted by I we Todd did View Post
Sorry, but, this thread has nothing to to with the "buying and selling" of stocks.....

Next thing we'll see is that the family grocery list will have something pertinent to this site.


You don't understand how money management relates to trading? GL with that one guy.
post #110 of 129
While money management needs to be something that every serious trader considers, it's something that will vary greatly from trader to trader, depending on their style, capital, risk tolerance, goals, etc. There is no one right answer here, each person needs to figure out what works best for them and the market they trade.

I see from your example that you're using a 2% stop loss, but that may not be enough depending on what you're trading. For something extremely volatile, 2% is just going to result in many stop outs right away. I highly recommend not using just some arbitrary amount for all your trades, I would use what works best for that security.

First off, figure out the liquidity of the stock you're trading. Ideally you want your position to be a small amount of the average daily traded volume. If liquidity isn't an issue, then figure out what you're willing to risk on each trade in dollar terms. Finally, figure out how large your stop loss should be based on the volatility of the stock and where the most relevant support lies at.

Say you're willing to risk $500 on a trade, which is 2% of your current account value. Then let's say that you're trading a pretty volatile stock and there's some support about 5% - 8% below your entry. To give it room to wiggle, you set your stop loss at 10%, since that will hopefully keep you in the trade if the market should go stop hunting and try to take out stops that are set right below that same support line you're watching. So you're willing to risk $500, and you want your stop set at 10%, so therefore your position should be $5000. $ amount willing to risk divided by stop loss percentage = $500/ 10% = $5000 (your position size).

Now say you're scalping a much less volatile stock, and say you're only aiming for 4%-5% and you figure a 2% stop loss is good enough to work with. Risking the same amount of money, $500, will then tell you that you can trade with a $25k position. $500/ 2% = $25k.

These are just a couple of examples, but it's an idea of what you should be looking at. Arbitrary stop $ amounts %s don't make sense since traders and stocks/markets vary so much. You'll be best off tailoring these things specifically to your needs and what you're trading.





Quote:
Originally Posted by vasudel View Post
My question is, for flipping stocks which of the following is efficient interms of money mgmt & loss prevention?

Splitting the money into 10%($2500) for each trade & if my all picks are bad I will loose max 20% total loss
or
Splitting the money into 20 or 25% for each trade & if my all picks are bad i will loose max 8-10% total loss

$25000 is the total account value & $3 is the commision for each transaction.

Ingeneral how much a trader use for flipping stocks ?.

Thanks
post #111 of 129
Quote:
Originally Posted by Rossj711 View Post
If you are really only trading $2500 I would personally suggest moving over to Forex. I started there with an amount similar and now that I'm comfortable I accept larger commissions because I find it easier, however for you.......

The commissions will be dirt cheap, and you can manage it better. With that amount, in Forex, you could do 2% everytime no matter what trade and not worry about it.

That's because in Forex you decide what everything is worth. If you want to trade the wealth of the australians against the yen (AUD/JPY) you can trade it like a penny stock if you wanted to.

2500 x 2% = $50

You are looking for a 50 pip swing, and you only want to risk 20 pips.

$50/20 pips = $2.50 per pip.

Your commission costs you $2.50 round trip,

If the trade works out you make $125. If it doesn't, you lose $50. Trading is all about probabilities, and luck. The money management part is what is going to make you really good. Do this enough times, let your winners run, and you will be doubling that account in months time.


PM me if you are interested further. I do offer training. GL
Yes, account doubling is quite easy. I just went to the bathroom, came back, and I doubled up... The market isn't even open, thats how easy it is'

Ok, for most mere mortals, trading is pretty difficult. For anyone who isn't profitable, I wouldn't recommend trading at 2 percent a pop. Why? Because you have no idea of the variance involved in your particular method. Also, you don't even know if you can make money. I think for anyone not profitable, your better off trading some real small amount, something smaller then 2 percent, but still has some sort of meaning to you. This is the cheapest way to learn. With some of the questions asked in this thread, I think that would be a much better option for most... Worry first about protecting your $, before you should be worrying about making it.
post #112 of 129
Quote:
Originally Posted by AgainstAllOdds View Post
Yes, account doubling is quite easy. I just went to the bathroom, came back, and I doubled up... The market isn't even open, thats how easy it is'

Ok, for most mere mortals, trading is pretty difficult. For anyone who isn't profitable, I wouldn't recommend trading at 2 percent a pop. Why? Because you have no idea of the variance involved in your particular method. Also, you don't even know if you can make money. I think for anyone not profitable, your better off trading some real small amount, something smaller then 2 percent, but still has some sort of meaning to you. This is the cheapest way to learn. With some of the questions asked in this thread, I think that would be a much better option for most... Worry first about protecting your $, before you should be worrying about making it.
I agree with AAO. When you're starting out, I highly recommend only trading with a sliver of the money you have available, just enough to hold your interest but not enough to do damage. Don't even worry too much about stops and strategy, since you most likely don't even have the basics down yet. These are things that come with experience, and the only way you're going to get experience is by surviving through your trades. Once you're comfortable with where you're at, you can slowly start to move up in position size and start to really incorporate money management and all the other nuances of trading.
post #113 of 129
Quote:
Originally Posted by Rossj711 View Post
I started there with an amount similar and now that I'm comfortable I accept larger
Simon covered the other guys question And yes, start of with a sliver that's exactly why I started smaller. There are three stages of trading 1- Losing 2 - Breaking even 3 - Consistently profiting, so if you are going to walk stage 1 there is no reason to use a lot

Realistically speaking, you can double an account over a couple of months. Even sooner, of course it' relative to your risk management strategy, but it's imperative you have one so you don't erase a weeks gain in a day etc etc.

Trading is not easy, in fact it's quite hard, but I think that's one of the reasons I'm drawn to it! Probably a little bit of that in us all
post #114 of 129
Quote:
Originally Posted by chan View Post
Even aggressive traders won't put more than 50% of their available balance in the market at one time.the rest may be reserved for fixed income,such as annuities, real estate, or other investments.
trading can be quite the roller coaster ride, and having a reserve outside the market helps smooth the emotional bumps of the ride.

You should look for low risk investments to offset your high risk investments.
choose what you are most comfortable with, such as risk - free investments (government bonds). You should regularly reevaluate your trading account to adjust the balance between aggressive and conservative positions as your trading account grows. twice a year will do.

Decide beforehand how much you are willing to risk in a single trade.
a successful trader will define risk as the Maximo amount of money they are willing to lose in a bad trade. if you are willing to lose a $1 in a trade, then your maximum risk is a dollar. although your maximum risk is only a dollar the stock itself may actually cost much more. if you bought a 425 stock and you set your stop loss at $23, your risk is $2, not $25.
You maximum risk is not actually the place you will exit the trade, that is the safety net you have in place in case things go wrong.

How much risk you are willing to take is useful when deciding how much of your total portfolio you are willing to invest in a trade.
most traders use a simple formula of risking no more than 1% - 2% of the total portfolio in any trade.
i'm working with 4,000 right now. I'm trying to figure out how i would do it, but i cant. Can you please help me out here.
post #115 of 129

Trailing stop order?

I have been fortunate in that a couple of stocks I bought have risen 20+% in the past month. While indications are they will continue to move up for a while, should I look at entering a trailing stop order to lock in some of the profit?
post #116 of 129
Quote:
Originally Posted by Retrofan View Post
I have been fortunate in that a couple of stocks I bought have risen 20+% in the past month. While indications are they will continue to move up for a while, should I look at entering a trailing stop order to lock in some of the profit?
Yes, you should lock in profits. Trailing stop, stop loss, etc. depends on your trading style.
post #117 of 129
Money Management training

Do you fully understand that over time you can make money given a slight statistical edge in the markets,
yet still make big over-leveraged mistakes from time to time?

Adopt consistency in your daily life and your mind will follow.

The point of this is to attempt to simulate the same emotions obtained during the hard times of trading
and learning to cope with it over time. Obviously this does not have the same level of negative effects
on the mind as trading live in over-leveraged positions, however as any one of these routines become
more and more obvious, it should eventually be instilled into one's mind. During a trading session we may
suffer from fatigue, greed, impatience, stress, etc. This heightens human subconscious reactions; limiting
one's ability to use logical thought, and in turn, one becomes exclusively focused on how one feels.
However if we can train methodically to be ready for any one of these emotions, they theoretically
become insignificant in consciousness as well as subconsciousness. If we see this on a daily basis
(daily money management exercises), the chemical releases become much more common and we
will eventually know how to properly react to the given situation.


These simple examples of mental exercises are meant to be repeated vigorously.

Roll a die, 1,2,3,4 to win, 5,6 to lose. After each consecutive roll physically write down results. There are
numerous charts out there that one can find the variances given a percentage win rate, and a sample size.
However the point of this exercise to gain first hand experience and understanding through trial and error
of variance, sample size, etc. Sample size can determine the divides of a trader's bankroll so that he/she can
tolerate the variances associated with the selection.


Play many online poker cash game tables at once. As some know, in sit and go cash games how well you
do is heavily based on calculating odds. Bluffing often in these kind of games, in the long run will cause bust.
At bigger tables it becomes increasingly hard because players take into account of hand history, however
the point of this is not to gain money in poker and memorize hand histories, but to rather play many tables
at once and methodically make good decisions based on statistical analysis. Bad beats heighten the learning
experience.


Another learned skill is to openly refine current trading skills given the current environment.
For Example playing anything weaker than AJ, or Pairs lower than 9 just the right of the big blind may be
detrimental to long term play, given the environment (table). As in trading, one may decide that their
mathematical indicator is not as strong as before—given a good amount of sampling time, thus may choose
to limit the trades that are more strongly based on that indicator.

"If I take a loss and it is a small loss, I consider that to be a good trade." -MrWeekend
post #118 of 129
Good courses.Yes, you should lock in profits for that business.
post #119 of 129

great thread. just read the whole thing. thanks chan the man!

post #120 of 129

Hi Chan and everyone else. I'm confused about what Chan said about positioning a buy-stop order after selling short, as he said in one of his posts:

 

 

Quote by Chan:
 
If you are short a stock, a buy stop order is positioned above the current market price. If the stock’s price rallies and reaches the price level of the stop order, the order becomes active and a buy market order is generated. Using stops in this manner will help limit your losses or lock in your profits.

 

Can anyone please elaborate on this? I thought when you sell short, you wait for the stock's price to lower and enter at support. Why did he place a buy-stop order above the current market price (the price he sold it at)? Shouldn't he place it below the market price?

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