iCharts Discussions

[abir2010]

Dear friends.....got this from some website........comments needed ??

Position sizing - How much quantity to buy?
Quantity to buy = (1% of trading capital) / (Purchase Price - Stoploss)
Eg. You want to buy a stock trading at Rs.100/- with a stoploss Rs.90. The quantity you should buy is 1000/(100-90) = 100 shares. You are investing Rs.10,000/- and if your stoploss gets hit, your maximum loss will be Rs.1.000/-.

Another example. In above example, say the stoploss is Rs.95. The quantity you should buy is 1000/(100-95) = 200 shares. You are now investing Rs.20,000/- and if your stoploss gets hit, your maximum loss is still Rs.1.000/-.

It is obvious that with every stoploss your trading capital is reducing by Rs.1,000/-. After 80 consecutive losses, you still have Rs.20,000/- left! In reality, a good mechanical system should give excellet profits in your 2nd or 3rd trade itself (unless the stock is rangebound in which case it will be obvious).

Stoploss and Exit Strategy (delivery):

The swing indicator has no target because you can never know with certainity if a stock will give 100, 200 or 500% return in a year. But by staying in a trade as long as possible, you vastly improve the chances of atleast capturing a significant percentage of the big move.

Initial stoploss: 10% from entry price or recent swing low (long positions) or low of signal bar (tight, can lead to whipsaws).

Exit strategy:

Exit if stock closes below initial stoploss (entry level) or
Indicator gives a sell or
Stock loses more than 5% in a single day or
Stock loses more than 10% from the most recent high (long positions).
Exit after 20 / 30 days as long as initial stoploss is not broken.