TheRumpledOne
6,411 posts
msg #48488
- Ignore TheRumpledOne |
12/9/2006 12:01:01 PM
Never Go "All In"
By Charles Delvalle
I see this mistake all the time: A new trader wants to make big money on a "hot" stock, so he lays down a position that is too large. But all it takes is one mistake... and he can lose most of his trading capital.
Let's say you start with $10,000 in your account, and you put all of your trading capital into each of a series of four trades:
You make 20 percent in your first trade, so now you have $12,000.
You make 30 percent on your second trade, so now you have $15,600.
You make another 20 percent on your third trade, so now you're up to a whopping $18,720.
But then, on your fourth trade, you take a big loss. The company you've invested in reports a lawsuit, and the stock tanks 80 percent. Now you're down to $3,744 - $6,256 less than the $10,000 you started with.
My advice to a new trader who doesn't have a lot of start-up capital is to never put more than 20 percent of his trading capital on any one position - no matter how "hot" the stock seems to be. Let me show you how that would work in the example above:
On your first trade, you would make $400.
On your second trade you would make $624.
On your third trade, you would make $440.
And on that fourth - disastrous - trade, you would lose $1,834.
But you would still have $9,630 in your account, instead of a measly $3,744. In other words, by using no more than 20 percent of your trading capital on each position, you could still take a big loss and have the money to trade another day.
This asset allocation works differently if you are an investor with over $100,000. At that point, you should dedicate no more than 4-5 percent to any single trade.
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juha
52 posts
msg #48501
- Ignore juha |
12/9/2006 7:39:57 PM
it's correct, but, TRO, you likes to repeat "it's not what you do, it's how you do it". I'm monitoring pre-market every day waiting for some special situation which occures one time per 4-6 months to invest ALL my money in one stock, may be even with margin....
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markcrisp
187 posts
msg #48508
- Ignore markcrisp |
12/10/2006 8:17:30 AM
oh and please do tell us when you have such a guarantee......Never seen one yet. Unless oyu have insider info.? I am all ears.
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juha
52 posts
msg #48514
- Ignore juha |
12/10/2006 2:44:05 PM
markcrisp, give me your email, I'll drop a message for you when I will put most of my money into one stock for several hours, I can even send a screenshot of my trading platform to ensure you that I'm honest...
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TheRumpledOne
6,411 posts
msg #48516
- Ignore TheRumpledOne |
12/10/2006 2:56:20 PM
I want to see it too!
therumpledone at gmail dot com
Thanks
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markcrisp
187 posts
msg #48542
- Ignore markcrisp |
12/11/2006 1:44:03 AM
hang on...so you look for one day trade every six months? This cannot be right? I thought you was looknig for a TASR, HANS stock (400%+ move) not a day trade....
So have I got this wrong?
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juha
52 posts
msg #48543
- Ignore juha |
12/11/2006 7:56:47 AM
>hang on...so you look for one day trade every six months? This cannot be >right? I thought you was looknig for a TASR, HANS stock (400%+ move) not a day >trade....
>So have I got this wrong?
I have several strategies, so this one I'm talking about is really happens one time per 4-6 months... and it's a day trade, 2-3 hours holding period...
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markcrisp
187 posts
msg #48544
- Ignore markcrisp |
12/11/2006 8:54:58 AM
OK....let us know about one BEFORE it happens. (no good after. LOL)
ICE is going up short term (11th Decmber 2006)
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juha
52 posts
msg #48546
- Ignore juha |
12/11/2006 8:59:16 AM
ok, I'll as soon as it happens
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markcrisp
187 posts
msg #48550
- Ignore markcrisp |
12/11/2006 10:44:49 AM
What kind of % return do you get in these 2-3 hour trades?
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