Suggested trading for a newbie

C

CrazedTrader

How big of lots would you recommend trading with. I currently have approx. 10k in my ameritrade account that I trade. I have oscillated between $1k purchases and $5k purchases.

For the $1k I have to make a good like to pay for the trading cost. For the $5k I get really really nervous as half my kitty is tied up.

Any suggestions from you guys on how much I should invest on stocks to stay balanced.
 
Crazed - I don't trade stocks anymore, but when I did, here is how I was able to get larger position sizes -

1) Define your acceptable risk amount in dollars. On $10k, let's say $500 is acceptable to lose on a trade.

2) Define your entry price and stop loss price. Let's say you are looking to enter a $12/sh stock and you think $10/sh is a good stop loss area = $2/sh willing to risk.

3) Take your $2/sh willing to risk and divide into $500 = 250 shares you can purchase. ASSUMING your stop is hit exactly (or close by) you can purchase 250 shares of a $12 stock and by placing your stop at $10/sh your max risk level is within your range.

I found by doing it this way you are able to trade more shares and while that may seem intimidating at first, I found that by doing the above calculations to help.

Keep in mind that if the stock gaps on you overnight, your stop may get blown by. This is why I HATE trading stocks overnight. I stick to futures now and mainly daytrading. You don't see very many gaps on the ES, NQ or EC intraday.

Good luck!
 
That is a great suggestion. Never really thought of breaking it down this far. The ability to trade at this rate allows for me to put in stop losses that are doable and not break the proverbial bank on any of my trades.
 
Quote from CrazedTrader:

That is a great suggestion. Never really thought of breaking it down this far. The ability to trade at this rate allows for me to put in stop losses that are doable and not break the proverbial bank on any of my trades.
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It worked for me Craze, esp when you first start trading. It got frustrating when a position would move in my favor but since I was gun shy or nervous in the beginning I would only buy a small amount of shares b/c I was worried about being stopped out.

The other thing to look at is options. You can get some more bang for your buck there, but more studying is involved.
 
Assume you bet 10 % of your money each time you trade. If you lose 10 times in a row then you lost everything and can not trade any more.

Bet 1 % and it takes 100 losers in a row to lose all your money.

You might want to consider how likely it is that you might lose 10 times, or 20 times in a row. I consider the length of a losing streak when deciding how much risk to use. I remember losing 19 out of 20 trades, maybe losing 20 times in a row once. If I use 1 % risk and lose 20 times in a row then I have a 20 % drawdown. Only you can decide if you can sleep at night with a 20 % drawdown.
 
As big as you risk tolerance can handle. I would start with 100 lots on a slow moving stock such as WMT. If you trade fewer than 100 it is very hard to cover your commission.
 
I trade a lot of vertical credit spreads. I have not used stop loss orders but want to start. Do you guys base your stop loss on the underlying moving or the price of the spread? For example, if I get .50 for the spread, would I set a stop loss order to exit the trade if the price of the spread would rise by .05 for me to buy it back, thereby costing me $5 extra to get out of the trade?
 
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