|
PureBytes Links
Trading Reference Links
|
>it works nicely for my type of stock trading.
<snip>
>For instance: If I get a signal on a stock selling for $30. My stop is 10%
>or $3. If my portfolio is $100,000 then my risk on any one trade is $1650
>(1.65% of $100 K). The number of shares I'd purchase is $1650/$3 = 550
>shares.
<snip>
>So if you have some suggestions on improving exits
>that would help me.
Hello Greg,
I have a few questions on this approach:
Let us assume that you will not use margin to finance your trading.
In the above example, you are committing $16,500 of your available
pre-margin capital to this trade. That is >16% of your capital, and you will
be able to place 6 such trades when your pre-margin cash maxes out.
a/ How do you insulate this capital exposure from adverse gap moves?
b/ Do you have all 6 trades placed simultaneously?
c/ If you do, how do you evaluate whether some other stock that triggers an
entry gets bought ?
d/ Does the $3 risk tolerance take the stock's ATR (average true range,
refer Welles Wilder) into account? If so, how frequently do you get stopped
out?
e/ If stops are triggered frequently, how does commission cost of frequent
entry-exit-re-entry figure into your $1650 MAE calculation?
My gut feel is that the amount of accuracy required for trade entry - and
continuation - using the risk parameters mentioned above is tremendous.
Else the method does not accurately reflect the market conditions we have
experienced in the past few years.
Would appreciate some insight.
Thanks
Gitanshu
|