I have had a brain snap?

[stink]

Can someone please check this for me lol!!

Just trying to do a basic calculation and it doesnt seem right, please confirm or deny and show me where i have gone wrong.

OK
Lets say i have 6000 capitol
2% risk on that is $120

I want to invest $3000 on an 80c share
so thats $3000/.80c = 3750 shares

Now where i am having troubles is working out the stop
$120 is 4% of $3000

I cant for the life of me work out at the moment where the stop should go? Or should i say work out what the lowest possible stop i could have?

Any advice would be appreciated, i know its something simple i just cant see it right now?

Cheers Stink

 

[stink]

Rest everyone i know your all madly typing to tell me where i am going wrong but i have got it sussed.

I am no math guru thats for sure so i am creating a trade calculator in excel that works it all out for me, anyway the stop loss wasnt right but i had the formula wrong.

Regards Stink

 

[Realist]

You probably want a stop at 77 or 76 cents. 76.8 to be exact.

Do you count brokerage as part of your 2% though?

If so, and I think you should. And it is $20 per trade, you need a stop at 78 cents.

 

[stink]

Thanks Realist,

Yeah thats exactly what i got so you just confirmed it for me.

I actually didnt think about that but will have to add it to my calc.

Cheers

 

[CanOz]

Good to see you talking stops Realist.

Remember though that the market tests stops from time to time. I remember not too long ago i had what i thought was a safe stop set nearly 2.5% below my purchase price at a good support level. The next day the market opened and took out my stop, costing me $400 odd dollars. The stock then rose to a new high.

This is how the market makers remove the stops. They know where they are, and they can see all of them.

Sometimes the only way to learn is the hard way

 

[rub92me]

Good point CanOz. I normally take into account the average volatility of the stock to help me decide where to place the stop (before I do the buy). In some cases this can indicate that the stock doesn't fit my risk profile so I won't buy in. And I move the stop up when the stock goes up of course...

 

[Realist]

Was that MRE??

If you average it out narrow stops cost people much more money than it saves them.

With Stink's $6,000 I think it is silly to only risk 2% of your capital on each trade.

I'd live by the seat of my pants with that one, no stops!! If you lose the whole damn lot (which is highly unlikely) so be it!

You'll find in hindsight stops, brokerage, taxes, and fees will kill you with only $6,000 to trade.

 

[CanOz]

No I sold out of MRE on my own. It was TAP oil. Every time i look at the chart it stands out like dogs B****. I agree that with smaller sums the stops aren't worth it if you risk getting stopped out.

I use trailing stops now with about 4% as the trigger point. This was i can also delay after the market opens by a pre chosen time frame, which would have saved me last time. I watch my positions all day anyway, so if i need to i can exit at market anytime.

The trialing stop loss is a good way to protect from a large drop in price, but even then its possible for selling to pass right through stops.

 

[pacer]

I watch a stock for 3-5 days if I have gone in long/short, THEN put in trailing stop loss at below a takeout price, if it is doing what it's supposed to, and go to the pub, or on holiday, anyone else been to fiji on a system like this and just checked in now and then....all is taken care of and can relax in the sun.

 

[Staybaker]

Hi Stink,

You might be interested in a "Position Size Calculator" which I created a couple of years ago. You can find it here. Click on the "help" link for instructions.

Canaussieuck: There are no market makers in the Australian stock market, all trades are managed electronically (i.e. by a computer system).

Cheers, Staybaker.

 

[CanOz]

Staybaker, are you saying there is no chance that large traders trading for large clients, deliberately mark up or mark down stock prices to test pricing support and resistance?

 

[felix]

Speaking as someone else with only a $6000 bankroll I have quickly decided that 2% stops are going to stop me out too quickly. 2% is too tight for a small bankroll, you pretty much have to set your stop one tick down from your buy-in after you account for brokerage. It gives you no chance.

Everything is against the small fry, so I believe I really need to be extra-vigilant in chosing my trades wisely (which I haven't always but it is all a learning process), and once chosen, knowing exactly what I want out of it and when it is best to get out.

I set stop-losses with less mathematics and more on preferred outcomes while considering how the stock typically behaves. For example, if the stock is very volatile, I feel I need to loosen up my stop-loss. Or I might go into a trade for a particular reason that is more risky than normal, and then I will set a tighter stop-loss. As an example of the latter (and probably of my extreme newbieness) I bought nearly $3000 of RMA on THAT day recently at 14.5c (at least I didn't buy it for 18.5c like some did). I knew it was a risky buy, and it didn't turn out, and I sold it halfway through the next day at 14c for a loss. If the buy hadn't been so risky in the first place, I probably would have had a stop at 13.5c or even 13c (which it traded at all day today). Who knows, maybe it will turn out I should have held it yet - but I think it's clear I should have stayed right away from it in the first place and I'm pleased I considered my risk and my stop-loss and at least had the sense to get out while I could.

 

[stink]

Was that MRE??

If you average it out narrow stops cost people much more money than it saves them.

With Stink's $6,000 I think it is silly to only risk 2% of your capital on each trade.

I'd live by the seat of my pants with that one, no stops!! If you lose the whole damn lot (which is highly unlikely) so be it!

You'll find in hindsight stops, brokerage, taxes, and fees will kill you with only $6,000 to trade.

I do see your point here realist and i agree to some extent, even though i am working out how to mathematically work out stops i will not use this method when trading such a small amount. As many others have replied and suggested to move it to a reasonable position and hopefully avoid the market makers etc.

Can you explain why its better in this case to have no stop? doesnt really make sense to me i mean if a trade drops significantly am i not better to take a % loss the smaller the better?

ONce i have reached my target profit level i would then tighten the stop right up to lock in any profits, at least thats the theory

Felix you and i seem to be in the same predicament using the 2% rule on this amount of money like you said made it unworkable as the stop is just to close. One of the problems with being undercapitolised i suppose.

Thanks all for the replies, very helpful
Stink

Her Staybaker, thanks for that calc mate it looks good.

 

[Staybaker]

Staybaker, are you saying there is no chance that large traders trading for large clients, deliberately mark up or mark down stock prices to test pricing support and resistance?

No, not at all - all I was saying was that there are no market makers in the Australian (stock) market.

Stink: Glad you like the calculator.

Cheers, Staybaker.