Lavish, this does not negate your logic. I will usually trade 10 times more shares of an $8 stock than I will of an $80 stock. What you said does make sense! But it is true that most (prop and firm) traders do not use this kind of money management. They will just trade a set number of shares. Doesn't make it right.
I still don't get this idea of "number of shares". If you usually trade 1K of a $60 stock, then what's wrong with increasing size to 4K if trading a $15 stock?
means bigger risk........a half point move on 4k measn 2000 gain or loss.....for that to happen in a 60 dollar stock at 1000 shares it has to move 2 dollars......and if you loossing its easiear to get stopped out at 50 cents than two dollars
can put you in the negative very quick.....you cant let it move like you would with a thousand shares
You miss my point. Given traders of equal skill trading stocks of equal volume and percent volatility, risking the same dollar amount, the person trading the higher priced stock will enjoy the greater dollar profit.
Daniel, when you said "risking the same dollar amount", do you mean risking a dollar amount on the stock price, or dollar amount on the position?
Why is it easier to get stopped out "at 50 cents" on a $15 stock than it is using a $2 stop loss on a $60 stock?