Stop Loss Question

[Steve C]

So if I was to invest $1000 for example in XYZ can I use a stop loss to risk only $50?

Not sure what you mean exactly risk $50 but you can risk $50 in a sense that as soon as your 1k turns to $950 your stop loss sells everything. Ofcourse you are risking more then $50 after your brockerage fees.

I think I now have my answer- thanks

What I meant by risking $50 is that I am only allowing for the shares to decrease in value to risk $50, once it goes past that I want a stop loss to sell the shares and move on and buy something else. I want to implement Radge's theory of not holding on to losing shares once they pass your level of risk.

Can anyone confirm if the below is true of false? this is what got me so confused...

Hey guys don't want to spoil the party but starting to trade with $1500 is risky because you have to risk at minimum 1/3 of your trading account ($500 parcels). Many traders aim to risk around 2%-5% of their account per trade (so if the trade is bad and makes a loss it's no big deal). This means you should have around 10k to start with (500/0.05). That's just my 2 cents, i know people have been successful from small starts but I just want to point out that just because Buffet or Livermore hit it big that you will too. .

 

[CanOz]

So if I was to invest $1000 for example in XYZ can I use a stop loss to risk only $50?

Not sure what you mean exactly risk $50 but you can risk $50 in a sense that as soon as your 1k turns to $950 your stop loss sells everything. Of course you are risking more then $50 after your brockerage fees.

Yeah you should consider brokerage if its a concern to you. I can't say that I've ever only risked $50 on an equity trade but work out with the calculator, using the price of the stock. You own the shares, you can sell them at whatever price you want under the current market value, no matter how many you own.

CanOz

 

[CanOz]

I think I now have my answer- thanks

What I meant by risking $50 is that I am only allowing for the shares to decrease in value to risk $50, once it goes past that I want a stop loss to sell the shares and move on and buy something else. I want to implement Radge's theory of not holding on to losing shares once they pass your level of risk.

Can anyone confirm if the below is true of false? this is what got me so confused...

Find out from your broker if they have a minimum amount of shares that you can purchase. That's the only thing you need to worry about. If you own the shares you can sell them at any price under the market.

Radge taught me FFP.

CanOz

 

[skc]

you can buy a share at $1.00 and you can sell it the next minute for $0.99 however the minimum sell amount has to equal $500.

Which broker has minimum sell amount? Not any of the ones I use...

 

[Trembling Hand]

Look that $500 minimum sell is BS. Its only applies to purchases.

Look at this example. You purchase the minimum amount $500 what happens if it ticks down to $499?????

Is the broker going to say you can never sell it because they have a $500 min?

 

[Trembling Hand]

Thanks Canoz - well now I am really confused! Time to do some more reading...

So if I was to invest $1000 for example in XYZ can I use a stop loss to risk only $50?

Mate you do realise the 2% rule has nothing to do with 2% share price move. Where you are going wrong is that you would only alot, as an example, 10% of total capital to 1 share not ALL of your capital.

 

[Steve C]

Look that $500 minimum sell is BS. Its only applies to purchases.

Look at this example. You purchase the minimum amount $500 what happens if it ticks down to $499?????

Is the broker going to say you can never sell it because they have a $500 min?

Great point -I thought the quote above was a bit fishy, it also made me think that trading with $2k and also implementing risk managment (tight stop loss) was impossible. Great news, now I can put Nick Radge's "minimise loss, maximise profits theory" and the whole "expectancy" theory into practice.

Thanks for everyone's inputs!

 

[Trembling Hand]

it also made me think that trading with $2k and also implementing risk managment (tight stop loss) was impossible. Great news, now I can put Nick Radge's "minimise loss, maximise profits theory" and the whole "expectancy" theory into practice.

NO YOU CANNOT!!

 

[Steve C]

NO YOU CANNOT!!

Trembling hand, I am talking about risk in terms of the purchase of the stock (how much I will allow it to fall before I sell), not the risk of not having a diversified portfolio (all my capital in one company)

perhaps that is the confusion? I do apologise again, I realise I have basically 0 knowledge and I must sound like a complete noob to you guys. I have so so much to learn!

 

[Trembling Hand]

Trembling hand, I am talking about risk in terms of the purchase of the stock (how much I will allow it to fall before I sell), not the risk of not having a diversified portfolio (all my capital in one company)

You cannot use Fixed Fractional Positioning with 2000 dollars there for you cannot trade with anything like a "Radge theory".

 

[sinner]

Look that $500 minimum sell is BS. Its only applies to purchases.

Look at this example. You purchase the minimum amount $500 what happens if it ticks down to $499?????

Is the broker going to say you can never sell it because they have a $500 min?

What we are talking about here with this $500 thing is "Marketable Parcels" and it's important to understand the actual rules

www.asxgroup.com.au/media/PDFs/Chapter19.pdf

marketable parcel
the meaning in the procedures of the ASX Operating Rules.
Note: The meaning of “marketable parcel” in the ASX Operating Rules Procedures is, in relation
to:
1. Equity securities (but not rights to subscribe for Equity Securities or options over Equity
Securities) a parcel of securities of not less than $500 based on:
(a) the closing price on a Trading Platform, if the Equity Securities are quoted; or
(b) the price paid on issue if the Equity Securities are unquoted; and
2. Rights to subscribe for Equity Securities, a parcel of rights which, if taken up in full, would
result in a parcel of Equity securities which would not be less than $500 based on:
(a) the closing price on a Trading Platform of the Equity Securities at the time of purchase of
the rights, if the Equity Securities are quoted; or
(b) the total application moneys payable in relation to the exercise of the rights, if the Equity
Securities are unquoted;
3. Options over unissued Equity Securities, a parcel of options which, if exercised in full, would
result in a parcel of Equity Securities which would not be less than $500 based on:
(a) the closing price on a Trading Platform of the Equity Securities at the time of purchase of
the options, if the Equity Securities are quoted; or
(b) the total moneys payable on the exercise of the options, if the Equity Securities are
unquoted; or
4. Loan Securities other than redeemable preference shares with a fixed and certain date for
redemption, 1 security with a face value of not less than $100.
5. Warrants, a parcel of Warrants where the value of the Underlying Instruments equals or
exceeds $500.00.
Amended 11/03/04, 17/12/10

You will notice there are plenty of ASX notices out there of companies attempting to sell their holdings of "unmarketable parcels". It's been a while but I do remember at least one case of my sell order being bounced by Comsec on the grounds that the sell would leave the remaining shares as an unmarketable parcel. Someone correct me if I'm wrong.

 

[Steve C]

You cannot use Fixed Fractional Positioning with 2000 dollars there for you cannot trade with anything like a "Radge theory".

Okay, thanks again for taking the time to try and explain the above to me...So far I have only read the "Successful Stock Trading" PDF by Radge, where he talks about always ensuring you have a tight stop loss so you can technically lose more than you win (excluding brokerage in this example) and still make a profit by the couple of stocks that go up. I may have got this completely wrong and misunderstood what he was trying to say...

R Ratio etc...

 

[pavilion103]

If you trade with $2,000 of capital and use fixed fractional positioning of 2% you do realise the amount risked on each trade is only $40? You do realise you have to pay brokerage too?


If you have say $20,000 and want to risk 2% per trade this is $400 per trade.
So for example,say you take the following trade:
Buy - 1.30 Stop loss - 1.20.
The gap between entry and stop is approx 7.7%.
The position size you take would be approx $5,200 (which is $400/.077)
NOW - if the share hits 1.20 you are taken out of the position with a $400 loss which is 2% of capital. This is how you use fixed fractional positioning.

*Note the position size here is over 25% of your capital base. You'll have to monitor this to make sure you aren't taking trades which are too large.

 

[Steve C]

If you trade with $2,000 of capital and use fixed fractional positioning of 2% you do realise the amount risked on each trade is only $40? You do realise you have to pay brokerage too?


If you have say $20,000 and want to risk 2% per trade this is $400 per trade.
So for example,say you take the following trade:
Buy - 1.30 Stop loss - 1.20.
The gap between entry and stop is approx 7.7%.
The position size you take would be approx $5,200 (which is $400/.077)
NOW - if the share hits 1.20 you are taken out of the position with a $400 loss which is 2% of capital. This is how you use fixed fractional positioning.

*Note the position size here is over 25% of your capital base. You'll have to monitor this to make sure you aren't taking trades which are too large.

Thanks Pav - I do realise I also have to pay brokerage (CMC - $9.90 per trade). The idea of using $2k is just to get my feet wet, and the use of a tight stop loss makes sure I don't lose all of my capital straight away while I am learning.

 

[pavilion103]

Thanks Pav - I do realise I also have to pay brokerage (CMC - $9.90 per trade). The idea of using $2k is just to get my feet wet, and the use of a tight stop loss makes sure I don't lose all of my capital straight away while I am learning.

It is going to be impossible to make a profit if your brokerage is 50%!!!! of your risk ($40).

A few questions:
- Have you been paper trading? If so, are you happy with your results
- Is $2,000 all you have saved up or are willing to use?
- Why don't you paper trade while you build up your account to a size where brokerage doesn't become such a large issue e.g. $15,000 or so?

 

[CanOz]

It is going to be impossible to make a profit if your brokerage is 50%!!!! of your risk ($40).

A few questions:
- Have you been paper trading? If so, are you happy with your results
- Is $2,000 all you have saved up or are willing to use?
- Why don't you paper trade while you build up your account to a size where brokerage doesn't become such a large issue e.g. $15,000 or so?

I think this is a great idea Pav. Its not the same as real trading of course, but its a hell of allot cheaper to learn about expectancy than to try with real coin.

If you can trade your system profitably on paper, you only have yourself to master.

CanOz

 

[tech/a]

It is going to be impossible to make a profit if your brokerage is 50%!!!! of your risk ($40).

A few questions:
- Have you been paper trading? If so, are you happy with your results
- Is $2,000 all you have saved up or are willing to use?
- Why don't you paper trade while you build up your account to a size where brokerage doesn't become such a large issue e.g. $15,000 or so?

You know you can become an expert at trading just one stock.
We do it with Futures.
There is no reason why you can't just trade one.

You can also move your stop up to break even as soon as there is some room in the trade.
This has the effect of stopping you out more often but will have a positive impact on your Reward To Risk.

If it was me I'd be looking at stocks above 5 cents and below 50c plenty here.

 

[Trembling Hand]

You know you can become an expert at trading just one stock.
We do it with Futures.
There is no reason why you can't just trade one.

You can also move your stop up to break even as soon as there is some room in the trade.
This has the effect of stopping you out more often but will have a positive impact on your Reward To Risk.

If it was me I'd be looking at stocks above 5 cents and below 50c plenty here.

Yeah you can do it with FX, maybe futs or CFDs and stick to reasonable money management but it seems like most start at the stock trading.

god knows why!!

 

[Ves]

Not sure if it has been mentioned, or is relevant (it should be), but a stop loss only reduces the risk of your market exposure via the security if it sells! It is not a gaurantee as far as I know. If you have a stop loss at $7.50, and the security goes into a trading halt at $7.60 and re-opens at $4 I am fairly certain you have lost much more than you anticipated!

Perhaps you could use some sort of derivatives to avoid this scenario?

 

[tech/a]

Not sure if it has been mentioned, or is relevant (it should be), but a stop loss only reduces the risk of your market exposure via the security if it sells! It is not a gaurantee as far as I know. If you have a stop loss at $7.50, and the security goes into a trading halt at $7.60 and re-opens at $4 I am fairly certain you have lost much more than you anticipated!

Perhaps you could use some sort of derivatives to avoid this scenario?

You would still be in the trade if the stock didn't trade AT $7.60
Unless you place a stop limit order.

Good point worth mentioning though.
Liquidity needs to b considered as well particularly in the stocks I mentioned above.
E Minis as T/H alludes to would be worth considering.