How much should I invest in short term trades?

[Frankieplus]

Hello everyone,

I'm trying to work out how much I should invest in short term trades, buy and then sell within days and weeks rather than hold for months... I have never done this before but I have been doing a lot of research and getting advice on which stocks I should trade.

Now I know that asking this question is like asking how long is a piece of string..

But, it seems that to make say $800-$2000 profit per short term trade, that I need to invest from say $10,000 - $20,000 per trade.. Does this sound like a normal everyday trade to you?

Everyone's financial situation is different.. I consider myself to be average australian, middle class.. Not rich, not poor.. Have a mortgage and 2 kids and a dog

Now I will be practising with a paper trading account first but I want to know what's normal for someone in my position..Its not unusual to trade up to $20k per trade is it?? And possibly have 2 or 3 trades active at a time.

My goal is to try to learn to use trades to supplement my income, pay for the groceries perhaps and maybe if I can profit around $2,000 per month would be good too..

So from what I have described, is $10k to $20k considered a higher or a lower amount for short term trades?

How about if I said $50k? Would you then think 'this is getting a bit high now'


-Frank

 

[Smurf1976]

So from what I have described, is $10k to $20k considered a higher or a lower amount for short term trades?

How about if I said $50k? Would you then think 'this is getting a bit high now'

My opinion is:

1. Start small. Because as with anything it's a given you'll make mistakes. The aim should be to develop a viable trading / investing methodology - once you've done that only then is it time to apply serious money to it.

That's the same logic as saying that someone learning to drive needs to learn the road rules and to control the car but isn't worried about actually traveling anywhere useful whilst learning.

2. Think in terms of percentages rather than absolutes. Whether or not $20K is huge or tiny depends on how much money you've got and are using (I'm not asking you to reveal that, just saying think in relative terms).

 

[Zaxon]

I'm trying to work out how much I should invest in short term trades, buy and then sell within days and weeks rather than hold for months.

Keep in mind the more you trade, the more brokerage costs rise. So you'll need to make that much extra.

But, it seems that to make say $800-$2000 profit per short term trade, that I need to invest from say $10,000 - $20,000 per trade.. Does this sound like a normal everyday trade to you?

Your sizing positions should be based on protecting your capital. So decide what stop-loss % you want per trade (this could vary depending on the stock). Decide how much you're willing to lose per trade from your total portfolio, typically 1%-2%. That math will tell you your trade size.

For instance:

Its not unusual to trade up to $20k per trade is it?? And possibly have 2 or 3 trades active at a time.

Depending on what your portfolio size is, $20k could be quite normal. If you're a intra-day trader, you'll be typically only running one stock at a time and following it like a hawk. If you're plan is to hold it for days or weeks, you can run as many stocks simultaneously as you'd like.

My goal is to try to learn to use trades to supplement my income, pay for the groceries perhaps and maybe if I can profit around $2,000 per month would be good too..

If you wanted $2000 / month, and let's say you achieve 10% pa:



So that's $240k you'd need.

 

[peter2]

If you want to trade short term then you'll need to use stop losses to protect your capital when prices go in the wrong direction. How much are you willing to risk on each trade? I'd suggest 1% to a limit of 2% of your total trading capital as you're going to have only 2 - 3 trades open. I'd suggest less if you want to start more trades.

eg Trade risk (R) = $500/trade, you'll need to win 4 x R to make your monthly goal.

Is your trading plan capable of doing that consistently?
How many trades will you need to do to earn +4R?

If you don't know the answers then you're not ready to start. If you're going to start anyway then I'd suggest you start with a much lower R value (eg $200). For lower amounts, brokerage is a huge cost to overcome. You may increase the value of R once you've proven to yourself that you're consistently profitable.

 

[HelloU]

u can download (excel) calculators off the net (not that i know anything about the internet) that do position sizing calcs for u based upon ur risk appetite and expected position gains and stop loss points and available capital. (risk/reward calculators).

when u use these calculators the numbers u put in are not just made up but come from somewhere else eg. the expected gain is not a random hope figure but an expected outcome ..... from say a chart extrapolation .......etc (so only partly made up - that is trading)

 

[Smurf1976]

There's also the question of what is short term?

Some will see that holding any position for more than a day is too long.

Others will say that anything under 12 months is short term.

 

[Zaxon]

Others will say that anything under 12 months is short term.

I guess the ATO considers it 12 months, since that's where the reduced capital gains tax cuts in.

 

[aus_trader]

I also agree with all of the above comments by fellow ASF members.

I just want to add that it's better to think in terms of %'s rather than actual $'s. In other words, rather than saying I want to make $2k per month look at in terms of % gains from your initial capital. Can you make 1% a month consistently ? If you can you are onto a great trading system / investing method. Basically that would equate to 12% per year, which is far better than the crappy 2% interest rate offered by the biggest of the banks or the more respectable 5% (on average) offered by good dividend paying stocks.

 

[tosegue]

I am learning how to trade as and I use $500 lots, every morning I do some research on penny stocks and most days have been good, I tend to buy 0.001c to $1.00 stocks , this week i have been trading GMD,LNY,WZR,SYT,BUB,LTR,NOX, When the market opens I set up a list of stock to buy and watch the most active stocks and after my first week I had a list of volitile stock, I buy and sell multiple times a day just looking for $20 to $100 wins. non of these are set and forget, I watch every trade and have up to three at a time, I use iRess and after eight trades its free so that was my first two days this month. so theres just profit or loss. BUB is on its way down at the moment, I bought it at 0.80c and sold it at $1.25, Then it dropped below $1.00 and I bought again and it went to $1.32 at end of trade on Friday, Monday it opened at $1.59 and I sold it straight away and It dropped back to $1.45 and I bought again but this time it struggled to gain so I sold it at $1.45. yesterday it was all over the place and i traded other stocks, today it is reducing and is at $1.49 i'm still watching it but thats to dear for me.
currently sitting on SYT bought 100,000 shares at 0.005 and the just announced good results from drilling and that often starts a feeding frenzy, it does'nt have to go up much to make profit.

 

[aus_trader]

I am learning how to trade as and I use $500 lots, every morning I do some research on penny stocks and most days have been good, I tend to buy 0.001c to $1.00 stocks , this week i have been trading GMD,LNY,WZR,SYT,BUB,LTR,NOX, When the market opens I set up a list of stock to buy and watch the most active stocks and after my first week I had a list of volitile stock, I buy and sell multiple times a day just looking for $20 to $100 wins. non of these are set and forget, I watch every trade and have up to three at a time, I use iRess and after eight trades its free so that was my first two days this month. so theres just profit or loss. BUB is on its way down at the moment, I bought it at 0.80c and sold it at $1.25, Then it dropped below $1.00 and I bought again and it went to $1.32 at end of trade on Friday, Monday it opened at $1.59 and I sold it straight away and It dropped back to $1.45 and I bought again but this time it struggled to gain so I sold it at $1.45. yesterday it was all over the place and i traded other stocks, today it is reducing and is at $1.49 i'm still watching it but thats to dear for me.
currently sitting on SYT bought 100,000 shares at 0.005 and the just announced good results from drilling and that often starts a feeding frenzy, it does'nt have to go up much to make profit.

Interesting, I did this type of thing in the good old mining boom days and initially made a fair bit of money and it was very exciting each day seeing one of the mining spec's going up 100's of %, it wasn't hard for a 1c stock to end up at 2.5c in one day those days. The irony is I gave back all my profits back to the market and then some during the mining bust days that followed doing the exact same thing !

Had a look at stocks in your trading list and Bubs Australia Ltd (BUB) has done quite well. Not sure how high it will go but certainly not for me, I don't chase high flying stocks. A stock that may not have run as hard but just initially breaking out to new highs is Electro Optic Systems (EOS).

 

[Joules MM1]

...how much I should invest in short term trades, buy and then sell within days and weeks rather than hold for months...

-Frank

short term denotes a trade not an investment, you are looking to make short term trades, concise compact

consider compartmentalising, your risk to suit your trade, where are you making the trade, in what part of the trend, are you making a trade in the direction of the main strength of the trend, does this allow you to alter the risk, do you lower the risk if/when you cannot give evidence that youre not with a major part of the trend, rather, youre trading say a break-out within the confines of a very wide range

if you always apply the same risk to every trade the risk is linear, which is fine of itself, a defensive strategy, to risk to the trade is more offensive and requires that you can demonstrate you know where you are in the trend as opposed to congestion, therefor you could lower your risk in congestion zones without missing out and conversely take advantage of the trend strength

to wit:

in the good old mining boom days and initially made a fair bit of money and it was very exciting each day seeing one of the mining spec's going up 100's of %, it wasn't hard for a 1c stock to end up at 2.5c in one day those days. The irony is I gave back all my profits back to the market and then some during the mining bust days that followed doing the exact same thing !

everyones a rocket scientist in a strong trend until the bend in the end

so if %'s are a major key to conducting good business (and they are), ensure you know your business rather than just an engineered leggo-style proceedure as a linear method to interact with an auction, while it produces results, beneficial and protective for you, it can also limit you if you proceed from the point of that your business is just how you conduct your account....in other words it is easy to achieve account death by a thousand cuts if you think your business is mostly in your conduct, especially when that conduct is based soley around the discipline of the business proceedure

in short term trades your business is with the auction ....ask yourself, what is the auction trying to achieve

answer that question then frame your risk (within the confines of risk assessment already worked out for your account to suit phases of trend versus trade)

2c

 

[tech/a]

Well I do it vastly differently than any here.

I’ll do some charts and explain later
I’ll have some time in a few hrs

 

[tech/a]

Firstly
Joules and Pete make some great points.

in short term trades your business is with the auction ....ask yourself, what is the auction trying to achieve

Joules are you speaking mostly of Futures?

Aus T I think in R/R I want to get that as high as I can. Money and %
return look after themselves when you get very high R/R. Pete
Alludes to that. I start with 2-4% but my average loss is .7% Over
many many trades.

Personally I prefer to get to B/E ASAP and really only use % at
risk or a hard Dollar amount as an initial Position size Calculation
which Im more than happy to vary up. NEVER down.

I dont mind a fist full of cuts particularly if they are shallow or dont even leave
a mark When trading short term I expect to go pretty well immediately
in my direction---with a target I expect to achieve. If it turns straight
around on me I want to limit loss and reset.

I've had trades I've placed
and hit a pretty wide INITIAL Stop while in a meeting (Don't try this
Trade and have Business meetings) it is super rare.--in my case.


If your trading short term you'll need lower time frame data and charting.
If your trading Intra day to a few days then Daily charts wont cut it.

In my view you need to know what Individual and multiple Bars and Patterns
indicate.
You need to be able to define targets from that analysis. Volume is a must have.

Most have an idea how I see charts
Here is one from April.

I've not marked all the entry and exit analysis but the keys are there and you can see
where I'm looking for trades that are likely to jump out not crawl out.
I will have up to 6 loaded. but once one or 2 are off I close all other prospects not triggered.
If I get really busy and cant set stops or have to go out for over an hr Ill set a tight trailing stop.

I dont trade while doing tenders!!

First chart is Daily
Second 15 min

 

[tech/a]

One that has my interest at the moment (tomorrow or until it fails )
SEN if you wish to follow.

 

[aus_trader]

Had a look at stocks in your trading list and Bubs Australia Ltd (BUB) has done quite well. Not sure how high it will go but certainly not for me, I don't chase high flying stocks. A stock that may not have run as hard but just initially breaking out to new highs is Electro Optic Systems (EOS).

Interesting news on EOS and it seems to be heading to $4+ highs...

 

[Lomu]

You should only trade as much capital as you're prepared to lose.

Because that's almost certainly what's going to happen.

 

[Zaxon]

You should only trade as much capital as you're prepared to lose. Because that's almost certainly what's going to happen.

So you should leave 99% of your wealth in the bank?

 

[Lomu]

So you should leave 99% of your wealth in the bank?

Lol, no. How would you think I'm suggesting just leaving money in the bank?

 

[Zaxon]

Lol, no. How would you think I'm suggesting just leaving money in the bank?

I'm prompting you for part 2 of your plan where you tell us where you would put your money.

 

[Lomu]

I'm prompting you for part 2 of your plan where you tell us where you would put your money.

Well if you're wanting to make money, short-term trading is about the worst way to go about it.

How about this radical idea: look for large companies, with good track records, solid earnings growth, competent management and invest in them?

Roughly 95 percent of short term traders lose money. That's nineteen out of twenty. Would you bet ten thousand dollars of your hard earned money on a single roll of a 20-sided dice? That's not the sort of odds I really like.