• Australian (ASX) Stock Market Forum

Hello and welcome to Aussie Stock Forums!

To gain full access you must register. Registration is free and takes only a few seconds to complete.

Already a member? Log in here.

How much should I invest in short term trades?

Discussion in 'Beginner's Lounge' started by Frankieplus, May 6, 2019.

  1. Frankieplus

    Frankieplus

    Posts:
    15
    Likes Received:
    7
    Joined:
    Apr 4, 2014
    Hello everyone,

    I'm trying to work out how much I should invest in short term trades, buy and then sell within days and weeks rather than hold for months... I have never done this before but I have been doing a lot of research and getting advice on which stocks I should trade.

    Now I know that asking this question is like asking how long is a piece of string..

    But, it seems that to make say $800-$2000 profit per short term trade, that I need to invest from say $10,000 - $20,000 per trade.. Does this sound like a normal everyday trade to you?

    Everyone's financial situation is different.. I consider myself to be average australian, middle class.. Not rich, not poor.. Have a mortgage and 2 kids and a dog :)

    Now I will be practising with a paper trading account first but I want to know what's normal for someone in my position..Its not unusual to trade up to $20k per trade is it?? And possibly have 2 or 3 trades active at a time.

    My goal is to try to learn to use trades to supplement my income, pay for the groceries perhaps and maybe if I can profit around $2,000 per month would be good too..

    So from what I have described, is $10k to $20k considered a higher or a lower amount for short term trades?

    How about if I said $50k? Would you then think 'this is getting a bit high now'


    -Frank
     
    Last edited: May 6, 2019
  2. Smurf1976

    Smurf1976

    Posts:
    8,690
    Likes Received:
    1,738
    Joined:
    Feb 14, 2005
    My opinion is:

    1. Start small. Because as with anything it's a given you'll make mistakes. The aim should be to develop a viable trading / investing methodology - once you've done that only then is it time to apply serious money to it.

    That's the same logic as saying that someone learning to drive needs to learn the road rules and to control the car but isn't worried about actually traveling anywhere useful whilst learning.

    2. Think in terms of percentages rather than absolutes. Whether or not $20K is huge or tiny depends on how much money you've got and are using (I'm not asking you to reveal that, just saying think in relative terms).
     
    Frankieplus, aus_trader and cynic like this.
  3. Zaxon

    Zaxon The voice of reason

    Posts:
    356
    Likes Received:
    225
    Joined:
    Aug 5, 2011
    Keep in mind the more you trade, the more brokerage costs rise. So you'll need to make that much extra.

    Your sizing positions should be based on protecting your capital. So decide what stop-loss % you want per trade (this could vary depending on the stock). Decide how much you're willing to lose per trade from your total portfolio, typically 1%-2%. That math will tell you your trade size.

    For instance:
    upload_2019-5-7_0-56-41.png

    Depending on what your portfolio size is, $20k could be quite normal. If you're a intra-day trader, you'll be typically only running one stock at a time and following it like a hawk. If you're plan is to hold it for days or weeks, you can run as many stocks simultaneously as you'd like.
    If you wanted $2000 / month, and let's say you achieve 10% pa:

    upload_2019-5-7_0-48-51.png

    So that's $240k you'd need.
     
    aus_trader likes this.
  4. peter2

    peter2

    Posts:
    2,854
    Likes Received:
    2,643
    Joined:
    Jan 12, 2008
    If you want to trade short term then you'll need to use stop losses to protect your capital when prices go in the wrong direction. How much are you willing to risk on each trade? I'd suggest 1% to a limit of 2% of your total trading capital as you're going to have only 2 - 3 trades open. I'd suggest less if you want to start more trades.

    eg Trade risk (R) = $500/trade, you'll need to win 4 x R to make your monthly goal.

    Is your trading plan capable of doing that consistently?
    How many trades will you need to do to earn +4R?

    If you don't know the answers then you're not ready to start. If you're going to start anyway then I'd suggest you start with a much lower R value (eg $200). For lower amounts, brokerage is a huge cost to overcome. You may increase the value of R once you've proven to yourself that you're consistently profitable.
     
    Frankieplus and aus_trader like this.
  5. HelloU

    HelloU

    Posts:
    655
    Likes Received:
    161
    Joined:
    Jan 3, 2018
    u can download (excel) calculators off the net (not that i know anything about the internet) that do position sizing calcs for u based upon ur risk appetite and expected position gains and stop loss points and available capital. (risk/reward calculators).

    when u use these calculators the numbers u put in are not just made up but come from somewhere else eg. the expected gain is not a random hope figure but an expected outcome ..... from say a chart extrapolation .......etc (so only partly made up - that is trading)
     
    Frankieplus likes this.
  6. Smurf1976

    Smurf1976

    Posts:
    8,690
    Likes Received:
    1,738
    Joined:
    Feb 14, 2005
    There's also the question of what is short term?

    Some will see that holding any position for more than a day is too long.

    Others will say that anything under 12 months is short term.
     
  7. Zaxon

    Zaxon The voice of reason

    Posts:
    356
    Likes Received:
    225
    Joined:
    Aug 5, 2011
    I guess the ATO considers it 12 months, since that's where the reduced capital gains tax cuts in.
     
    aus_trader and Smurf1976 like this.
  8. aus_trader

    aus_trader

    Posts:
    545
    Likes Received:
    236
    Joined:
    May 30, 2017
    I also agree with all of the above comments by fellow ASF members.

    I just want to add that it's better to think in terms of %'s rather than actual $'s. In other words, rather than saying I want to make $2k per month look at in terms of % gains from your initial capital. Can you make 1% a month consistently ? If you can you are onto a great trading system / investing method. Basically that would equate to 12% per year, which is far better than the crappy 2% interest rate offered by the biggest of the banks or the more respectable 5% (on average) offered by good dividend paying stocks.
     
    Frankieplus, Skate and Zaxon like this.
  9. tosegue

    tosegue

    Posts:
    6
    Likes Received:
    9
    Joined:
    Apr 29, 2019
    I am learning how to trade as and I use $500 lots, every morning I do some research on penny stocks and most days have been good, I tend to buy 0.001c to $1.00 stocks , this week i have been trading GMD,LNY,WZR,SYT,BUB,LTR,NOX, When the market opens I set up a list of stock to buy and watch the most active stocks and after my first week I had a list of volitile stock, I buy and sell multiple times a day just looking for $20 to $100 wins. non of these are set and forget, I watch every trade and have up to three at a time, I use iRess and after eight trades its free so that was my first two days this month. so theres just profit or loss. BUB is on its way down at the moment, I bought it at 0.80c and sold it at $1.25, Then it dropped below $1.00 and I bought again and it went to $1.32 at end of trade on Friday, Monday it opened at $1.59 and I sold it straight away and It dropped back to $1.45 and I bought again but this time it struggled to gain so I sold it at $1.45. yesterday it was all over the place and i traded other stocks, today it is reducing and is at $1.49 i'm still watching it but thats to dear for me.
    currently sitting on SYT bought 100,000 shares at 0.005 and the just announced good results from drilling and that often starts a feeding frenzy, it does'nt have to go up much to make profit.
     
  10. aus_trader

    aus_trader

    Posts:
    545
    Likes Received:
    236
    Joined:
    May 30, 2017
    Interesting, I did this type of thing in the good old mining boom days and initially made a fair bit of money and it was very exciting each day seeing one of the mining spec's going up 100's of %, it wasn't hard for a 1c stock to end up at 2.5c in one day those days. The irony is I gave back all my profits back to the market and then some during the mining bust days that followed doing the exact same thing !

    Had a look at stocks in your trading list and Bubs Australia Ltd (BUB) has done quite well. Not sure how high it will go but certainly not for me, I don't chase high flying stocks. A stock that may not have run as hard but just initially breaking out to new highs is Electro Optic Systems (EOS).
     
    Leadbassist, tosegue and Skate like this.
  11. Joules MM1

    Joules MM1 ....everything has an art

    Posts:
    2,769
    Likes Received:
    404
    Joined:
    Jun 10, 2007
    short term denotes a trade not an investment, you are looking to make short term trades, concise compact

    consider compartmentalising, your risk to suit your trade, where are you making the trade, in what part of the trend, are you making a trade in the direction of the main strength of the trend, does this allow you to alter the risk, do you lower the risk if/when you cannot give evidence that youre not with a major part of the trend, rather, youre trading say a break-out within the confines of a very wide range

    if you always apply the same risk to every trade the risk is linear, which is fine of itself, a defensive strategy, to risk to the trade is more offensive and requires that you can demonstrate you know where you are in the trend as opposed to congestion, therefor you could lower your risk in congestion zones without missing out and conversely take advantage of the trend strength

    to wit:
    so if %'s are a major key to conducting good business (and they are), ensure you know your business rather than just an engineered leggo-style proceedure as a linear method to interact with an auction, while it produces results, beneficial and protective for you, it can also limit you if you proceed from the point of that your business is just how you conduct your account....in other words it is easy to achieve account death by a thousand cuts if you think your business is mostly in your conduct, especially when that conduct is based soley around the discipline of the business proceedure

    in short term trades your business is with the auction ....ask yourself, what is the auction trying to achieve

    answer that question then frame your risk (within the confines of risk assessment already worked out for your account to suit phases of trend versus trade)

    2c
     
    peter2, Skate and aus_trader like this.
  12. tech/a

    tech/a No Ordinary Duck

    Posts:
    18,609
    Likes Received:
    2,084
    Joined:
    Oct 14, 2004
    Well I do it vastly differently than any here.

    I’ll do some charts and explain later
    I’ll have some time in a few hrs
     
  13. tech/a

    tech/a No Ordinary Duck

    Posts:
    18,609
    Likes Received:
    2,084
    Joined:
    Oct 14, 2004
    Firstly
    Joules and Pete make some great points.

    Joules are you speaking mostly of Futures?

    Aus T I think in R/R I want to get that as high as I can. Money and %
    return look after themselves when you get very high R/R. Pete
    Alludes to that. I start with 2-4% but my average loss is .7% Over
    many many trades.

    Personally I prefer to get to B/E ASAP and really only use % at
    risk or a hard Dollar amount as an initial Position size Calculation
    which Im more than happy to vary up. NEVER down.

    I dont mind a fist full of cuts particularly if they are shallow or dont even leave
    a mark When trading short term I expect to go pretty well immediately
    in my direction---with a target I expect to achieve. If it turns straight
    around on me I want to limit loss and reset.

    I've had trades I've placed
    and hit a pretty wide INITIAL Stop while in a meeting (Don't try this
    Trade and have Business meetings) it is super rare.--in my case.


    If your trading short term you'll need lower time frame data and charting.
    If your trading Intra day to a few days then Daily charts wont cut it.

    In my view you need to know what Individual and multiple Bars and Patterns
    indicate.
    You need to be able to define targets from that analysis. Volume is a must have.

    Most have an idea how I see charts
    Here is one from April.

    I've not marked all the entry and exit analysis but the keys are there and you can see
    where I'm looking for trades that are likely to jump out not crawl out.
    I will have up to 6 loaded. but once one or 2 are off I close all other prospects not triggered.
    If I get really busy and cant set stops or have to go out for over an hr Ill set a tight trailing stop.

    I dont trade while doing tenders!!

    First chart is Daily
    Second 15 min


    ST 1.gif



    ST 2.gif
     
    debtfree and peter2 like this.
  14. tech/a

    tech/a No Ordinary Duck

    Posts:
    18,609
    Likes Received:
    2,084
    Joined:
    Oct 14, 2004
    One that has my interest at the moment (tomorrow or until it fails )
    SEN if you wish to follow.
     
    aus_trader and debtfree like this.
Loading...

Share This Page