paper trade, page-3

Summary of first day of SBM paper trade

First off, I want to thank tigmaster for joining the discussion, I thought I was all alone! In regard to MACD I agree it is a very useful tool so we will keep an eye on it too.


Today I "bought" SBM at $1.97 (the worst price of the day, as detailed in first post below)

Now we have to set an initial stop loss. I would like other opinions as to how you do this

Guppy and others recommend that no more than 2% of trading capital is risked on any one trade. So lets assume we have a trading account with $100,000 therefore 2% = $2,000 which is the maximum we would allow to be lost on this trade.

I would allow myself around 10% of the $100,000 account for each purchase, ie $10,000.

Therefore I "bought" 5000 SBM at $1.97 at a cost of $9,850 + brokerage $20 = total cost $9870.

Conventional thought would place the initial stop at $1.75 the most recent significant low - see bottom horizontal line on chart. If we had to sell at this point we would lose 5000 x 22cents = $1,100 + brokerage, which is well within the 2% rule

However I have taken a more recent intermediate low, $1.82 as the initial stop loss, because we would lose less if the market went against us - see the higher horizontal line on the chart. If we sell at this point we would lose 5000 x 15cents = $750 + brokerage. The risk here is that a tighter stop might get me out too early.

The next part of the trading plan is to look at exits. Exit strategy is a very individual thing - and again I ask for other opinions.
Many traders use a percentage rise as their plan, some using fibonacci percentages to determine the sell price. Others look for repeated patterns of rises in the past. However, I believe most traders use a system of trailing stops. Again there are alternative ways

So I intend to use trailing stops together with the 5/10 EMA (& MACD,thanks tigmaster)as early indicators of a short term trend reversal.

What do you think of the plan so far???

Crossover