|
Printable version |
| From: | "Morgy 40" <morgy40@hotmail.com> |
| Date: | Tue, 30 Sep 2003 11:34:49 +1200 |
Allan
Why not get a cheaper broker rather than be forced to trade to a specific size for brokerage, though I agree at any level it is a consideration, your freightways deal is less .03 per share for the whole deal which is nothing I think you will agree.
Might I suggest that you take the opposite strategy, cut your losses quicker and let the profits run more, its a basic tenant of investment. At the moment you have nearly 3.5% of you capital for this trade at risk or if the additional 20k is added and that is your total capital for trading then that is 2% which is normally considered at the top end of risk.
There are a couple of really good little formulas for keeping these things in perspective, firstly a spreedsheet called traders ruin (I have emailed it to you), it simply shows how many trades given your brokerage level and trading capital it will take to destroy your account, it is quite a sobering visual display and allows you to tailor your risk level to a comfortable level.
Secondly, if you have 50k capital and lose 1k that is 2% or a net capital amount after the loss of $49,000.00. To get back to breakeven you need to earn more than 2% to make that back.
Lets do a hypothetical example based on your brokerage as I understand it.
Company x @ 1.50 per share / 29k = 19,333 shares + brokerage both ways = $60.00
Breakeven is then less than $1.51 if we add the higher brokerage for a potential profit over 1k rather than a loss it makes the breakeven $30.00 in and 90.00 out if I read you correctly ?. Breakeven is now as follows
19,333 * 1.50 + brokerage (round trip) at $120.00 = $29,119.50 or $1.5063 rounded is $1.51 per share, to me that doesnt seem at all bad, damn good in fact. You have then the potential for unlimited profit, you already know what your breakeven is. If you look at a chart prior to buying and the stock is trending up, flick a 30 day moving average on it and use that as a guide to buy and sell lines and you will get better results.
If we look at the downside for capital preservation then we would do the sums like this, we know our breakeven at worst ( with highest brokerage) is less than $1.51 or close to buy price.
If we leave the brokerage in the total outlayed equation and deduct your current stop loss of $1k that leaves the equation as follows,
28,119.50 (maximum prepared to lose) / 19333 = 1.455, lets say $1.46 for safety. Now you know the breakeven and it looks good to me and your stop loss why not concentrate on a trailing stop loss after the share starts moving to lock in your pofits, say for every .01 cents the share moves up past your breakeven (1.51) you move your stop loss up .01 cents, i.e share is now 1.52, move your stop loss to 1.47.
This method will ensure that you are trading from the positve side, cutting any losses at 1.46 if the stock tanks and locking in profits past your breakeven point of $1.51.
Brokerage is the cost of doing business, just like shopkeepers have to turn the fridges and lights on, it doesnt mean we should pay to much but make sure you put it in perspective.
I hope this helps
Regards
Morgy
|
© Copyright 1997-2024 MoneyOnline Ltd - All Rights Reserved
See IRG research reports
