Swing Trade tips with 98% accuracy!!!
- Thread starter indiabulz
- Start date
- Tags calls recommendations swing trade tips
I
Well, i use multiple ways to fix the stop loss.
Placing a stop loss primarily depends on three factors:
1) Your risk taking abilities.
2) Volatility of the stock.
3) Risk reward ratio.
Lets discuss each of these in detail and summarize the all the three into a strategy.
1) Your Risk Taking Abilities
Every trader has their own risk taking abilities. That depends on the adrenaline secreted in your body. But we dont trade with our adrenaline glands, we trade with our brain. So being sensible with our risks is very important. Careless risks can even exhaust your account in one single day.
Traders should ideally risk only 10% of their account balance. So a trader with 1 Lakh account balance can afford to invest Rs.10,000 which with a 1:5 or 1:10 leverage becomes Rs. 50,000 or Rs 1 lakh. This is known as trading on margin. Trader should strictly avoid risking more than 30% of their balance to survive in the market.
Now comes the task of placing a stop loss. This stop loss is like a double stop loss. You have already risked only 10% of the money. After using the second stop loss which is the stop limit order you should bring down your risk to around 0.01-0.05% of your total account balance. This means you will now be setting the stop loss 10 to 50 rupees away from the traded price. This is known as effective cash management. You have the choice to decide your risks and make your own calculations. You can also place a trailing stop loss.
2) Volatility of the stock
Volatility refers to the amount of uncertainty or risk about the size of changes in a security's value. A higher volatility means that a security's value can potentially be spread out over a larger range of values. This means that the price of the security can change dramatically over a short time period in either direction. A lower volatility means that a security's value does not fluctuate dramatically, but changes in value at a steady pace over a period of time. The best way to calculate the volatility of a stock is by using the Average True Range (ATR) indicator.
Volatility of a stock in simple words can be defined as the basic unit by which a stock moves in one tick on an average. Just by observing the prices you can estimate an average movement of price on every tick. We call this a 'Degree'. A stop loss should be atleast 10 degrees below/above the traded price. The magnitude of a degree usually varies from Rs. 0.5 to Rs.5 or even more. The stop loss should vary from Rs.5 to Rs.50 below/above the traded price.
3) Risk Reward ratio
A ratio used by investors to compare the expected returns of an investment to the amount of risk undertaken to capture these returns. This ratio is calculated mathematically by dividing the amount of profit the trader expects to have made when the position is closed (i.e. the reward) by the amount the trader stands to lose if price moves in the unexpected direction (i.e. the risk).
Let's say a trader purchases 100 shares of TATASTEEL at Rs.500 and places a stop-loss order at Rs.490 to ensure that his losses will not exceed Rs.1000. Let's also assume that this trader believes that the price of TATASTEEL will reach Rs.550 in next few months. In this case, the trader is willing to risk Rs.10 per share to make an expected return of Rs.50 per share after closing his position. Since the trader stands to make five times the amount that he has risked, he would be said to have a 5:1 risk/reward ratio on that particular trade. The optimal risk/reward ratio differs widely among trading strategies. Some trial and error is usually required to determine which ratio is best for a given trading strategy.
I use a risk reward ratio of 2:1 which is optimum. Beacuse ideally if a stock rises two folds then it is expected to fall by one fold. A direct five fold movement like in the above example is hardly seen. So if you are buying a stock at Rs.X and wishing to sell at Rs.Y then a stop loss shall be set at (X-Y)/2 below Rs.X.
Plus Fib levels and Pivot Point levels are also equally important in fixing the stop Loss. Over time, i have gradually mastered on placing stop loss but i know i am not always right. Learn while you earn, thats my basic theme of trading.
Placing a stop loss primarily depends on three factors:
1) Your risk taking abilities.
2) Volatility of the stock.
3) Risk reward ratio.
Lets discuss each of these in detail and summarize the all the three into a strategy.
1) Your Risk Taking Abilities
Every trader has their own risk taking abilities. That depends on the adrenaline secreted in your body. But we dont trade with our adrenaline glands, we trade with our brain. So being sensible with our risks is very important. Careless risks can even exhaust your account in one single day.
Traders should ideally risk only 10% of their account balance. So a trader with 1 Lakh account balance can afford to invest Rs.10,000 which with a 1:5 or 1:10 leverage becomes Rs. 50,000 or Rs 1 lakh. This is known as trading on margin. Trader should strictly avoid risking more than 30% of their balance to survive in the market.
Now comes the task of placing a stop loss. This stop loss is like a double stop loss. You have already risked only 10% of the money. After using the second stop loss which is the stop limit order you should bring down your risk to around 0.01-0.05% of your total account balance. This means you will now be setting the stop loss 10 to 50 rupees away from the traded price. This is known as effective cash management. You have the choice to decide your risks and make your own calculations. You can also place a trailing stop loss.
2) Volatility of the stock
Volatility refers to the amount of uncertainty or risk about the size of changes in a security's value. A higher volatility means that a security's value can potentially be spread out over a larger range of values. This means that the price of the security can change dramatically over a short time period in either direction. A lower volatility means that a security's value does not fluctuate dramatically, but changes in value at a steady pace over a period of time. The best way to calculate the volatility of a stock is by using the Average True Range (ATR) indicator.
Volatility of a stock in simple words can be defined as the basic unit by which a stock moves in one tick on an average. Just by observing the prices you can estimate an average movement of price on every tick. We call this a 'Degree'. A stop loss should be atleast 10 degrees below/above the traded price. The magnitude of a degree usually varies from Rs. 0.5 to Rs.5 or even more. The stop loss should vary from Rs.5 to Rs.50 below/above the traded price.
3) Risk Reward ratio
A ratio used by investors to compare the expected returns of an investment to the amount of risk undertaken to capture these returns. This ratio is calculated mathematically by dividing the amount of profit the trader expects to have made when the position is closed (i.e. the reward) by the amount the trader stands to lose if price moves in the unexpected direction (i.e. the risk).
Let's say a trader purchases 100 shares of TATASTEEL at Rs.500 and places a stop-loss order at Rs.490 to ensure that his losses will not exceed Rs.1000. Let's also assume that this trader believes that the price of TATASTEEL will reach Rs.550 in next few months. In this case, the trader is willing to risk Rs.10 per share to make an expected return of Rs.50 per share after closing his position. Since the trader stands to make five times the amount that he has risked, he would be said to have a 5:1 risk/reward ratio on that particular trade. The optimal risk/reward ratio differs widely among trading strategies. Some trial and error is usually required to determine which ratio is best for a given trading strategy.
I use a risk reward ratio of 2:1 which is optimum. Beacuse ideally if a stock rises two folds then it is expected to fall by one fold. A direct five fold movement like in the above example is hardly seen. So if you are buying a stock at Rs.X and wishing to sell at Rs.Y then a stop loss shall be set at (X-Y)/2 below Rs.X.
Plus Fib levels and Pivot Point levels are also equally important in fixing the stop Loss. Over time, i have gradually mastered on placing stop loss but i know i am not always right. Learn while you earn, thats my basic theme of trading.
I
Recommendations Report !!!
Folks, i cant believe, its all happening, Today NELCAST went down 16% in Intraday session.
Short Sold NELCAST @ 134, Achieved Target @ 115-110 on 25/01/2011.
Net Profit = 21% in 3 Trading Days.
This was my Greatest Trade in 2011. I cashed out 2.5 lacs today. Anyways like an informed trader my emotions will not come in the way of my trading. Still a long way to go.
Folks, i cant believe, its all happening, Today NELCAST went down 16% in Intraday session.
Short Sold NELCAST @ 134, Achieved Target @ 115-110 on 25/01/2011.
Net Profit = 21% in 3 Trading Days.
This was my Greatest Trade in 2011. I cashed out 2.5 lacs today. Anyways like an informed trader my emotions will not come in the way of my trading. Still a long way to go.
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