RISK MGMT AND TRADING STATS (EXCELLENT)
stockcentral.com.au
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No problem.
Which system do you wish to now about? Breakouts, trend following, bollinger, spike, time orientated?
Please just choose one as this is all I'll have time to explain.
Before you look at my systems, try doing this simple wee questionaire, my system is based on an overall equity of +$10m excluding leverage. Your system may be totally different to mine!:
How much capital do you have:
How much does EACH trade cost you:
What is your maximum risk to your capital including brokerage (eg $380):
What is your win loss ratio:
(Assume that your win/loss ratio is two losses for every 1 win if you are new to this game 1:2 w:l)
What will be your position size on each trade (5-7% is normal for non-bluechip stock):
Now get your maximum loss and divide it by your position size and multiply by 100. This is the maximum distance from your stoploss that you can buy at.
Divide your losses by your wins eg(2/1) and multiply by your maximum loss eg(2/1*380=760) This is how much you need to make per trade to break even. If you had 1900 per position then you need an average gain of 40% on your winners (quite possible).
Get your maximum loss and divide it by your position size eg(380/1900)=20%, this is the maximum daily ATR of your stock. It can be no greater than 20% per day, I would scale this back to about 15% to begin with.
Get your the cost of a trade eg(brok + GST) and divide it by your order size and *100 (eg 32.5 + 32.5 + 3 / 1900 * 100 = 3.5%, This means that you will have to have a share which moves at least 1% every day if you want to breakeven in 1 week minimum. I like 1.5%+
If you really want to become a serious trader buy Accounting - An Introduction, Atrill, 2000, Prentice Hall and write yourself up a cashflows, balance, and profit & loss (new terminology - cashflows is now known as statement of position). Do this for 1 year and asses your ROE ROA.
Most people find that if they have more than 50% winners, that their gains are less and their losses stay the same. They also find that it is the QUANTITY of shares traded rather than the amount you put on them.
Anyways, feel free to ask any questions that you want. I have no problem with disclosing ANY information that anyone wants to ask about my systems and methodology.
I will however point out that the "secret" to my success lies in controlling risk. I can't control the market, I can control my risk.
I started trading with small capital, and over the years snagged some large trade, mostly by probability. (i.e. the longer you are in the higher the probability you have of making a "one off" significant gain)
Most people think that this referrs to a sudden spike or dramatic increase in price in short timeframes.
Which would you rather have $500,000 in MNR before it went up 1400%, or $1000 in WSF when it went public??
If you opted for $500000 in MNR you would have made $70m, if you opted for $1000 in WSF you would have had $110m by now after dividends.
How to get rich (by Mongoose)
a) ALL of the worlds richest people who became billionaires floated a company on the exchange. People say that Warrent Buffet is a great investor, when he actually made all his money by floating Berkshire Hathaway who's stock price went from $1 to $100,000, Buffet retaining a large amount of the stock. Bill Gates (Microsoft), Waltons (Walmart), Michael Dell (Dell).
b) Run your own business (succesfully), Dyson, Thermelec, Barbagallo
c) Trade shares/currencies/futures with discipline and edge and get 40%+ per annum, while maintaining your day job, till you have more cash inflows than you do outflows. (Normally 5 years on $15,000)
d) Buy & sell property with intelligence. eg(If yor house is in your wifes name, take out a loan to buy the house from her, she uses the money to buy another house; huge tax advantages, discuss with accountant)
e) Marry someone rich
f) Steal it!
Instead of defining wealth as $1m, define it as making $50,000 per year from the market, or having enough to meet your needs plus $10,000. Happiness in the ultimate sense is unattainable as is the ultimate profit. Why doesn't Bill Gates quit and live a life of luxuary and spend time with his family and son and leave his stressful lifestyle? Because he believes that he hasn't got enough money yet... and never will.
Write up a plan, when you plan to finish work, budgets, costcutting, profits, backups, risks etc and stick to it, then and only then will you have your trading plan. |
