I have a general question for people who use buy stops. At present, I trade a system that produces a list of potential stocks to trade. That list of stocks would also include a threshold pricing level for which the trades are to take place only if the stock price rises and then crosses over that threshold level.
I have no problems with setting up the orders in such a way so that the trades are triggered as required. However, the problem for me is that out of 5 (say) potential stocks listed by my system, only 1 or 2 may rise above the threshold level triggering the trade. Because at the time of placing the conditional orders, I have no idea which (if any) will be triggered, I have little choice but to issue the conditional buys on all 5 in order to corner the 1 or 2 stocks.
The problem is that every conditional trade I place will “reserve” a lump of my capital at the time of placement, irrespective of whether the trade actually takes place or not. This ties up my capital and prevents me from trading other opportunities. On some days, it is entirely possible to have no actual trades take place from the 5 conditional trades that I put in, which is very inefficient usage of my capital.
What I would like is for my broker to “reserve” capital only for the trades that take place, and not at the conditional stage. Therefore if I have capital to only take 2 trades then once the 2 trades have gone through, the broker can cancel all remaining conditional orders. That way, I can place as many conditional orders as I like (without tying up my capital) and my capital will be used only when the actual trades take place.
Another alternative would be for me not to enter any conditional orders at all, but to just set alerts for the 5 candidate stocks and when any of them rise above the threshold level, I get a SMS and then run to a screen to activate the order accordingly. Unfortunately, this is not practical for me.
The reason I brought this up is because even a very good system can be rendered ineffective if the capital required to trade it becomes exorbitant. Just curious as to whether anybody else has similar problems and how they have gotten around it.