For the Equity Trader

One of the things I found difficult when trading equities was defining my exit. Lot size, price, and momentum of the tradable were all factors I wanted to account for when deciding my exit. I developed this spreadsheet for both long and short entries and would like to share it. Very easy to work with, there are only five cells requiring your attention.
1.Cell A1 – Input the amount of money you are using for the trade.
2.Cell B1 – Input the rounding factor for your lot size. 50 will round your lot to the nearest 50, 100 to the nearest 100, etc.
3.Cell D1 – Input the price of the equity.
4.Cell A3 – Input a base percentage. Any percent can be used depending upon how the trade is working out for you. Just for fun try 5, 10, or 25 to view the results.
5.Cell B26 – Input the commission cost to enter and exit the trade.

Both pages work exactly the same except one will show you gains for long trades while the other shows gains for short trades. Columns D, E and F show you how the gain (loss) in share price affects your profits on a percentage basis as well as on a dollar basis. Columns I, J, and K and Columns N, O, and P repeat this same information but each increase (decrease) the entry price by 5 percent. This allows you to see how traders who took up a position behind you at those price levels are profiting in their trades. Alternatively, it gives you places to initiate your position if at first uncertain of the trade or these provide places to add on to an existing position. If the trade is performing well and you contemplate a longer-term play than just a quick scalp, you can then increase the number in Cell A3 to perform some ‘what if’ explorations.

Bruce

 

A picture is worth a thousand words, so they say.

Bruce

 

When trading equities I was sometimes curious how I could trade a low volatility stock but obtain the return of a high volatility stock. I had a system for trading stocks at that time that was a combination of stochastics and moving average crossover. In order to use this position sizing method you, too, will have to know what performance your system has achieved when trading more than one stock. Procedure follows:

1. Determine the coefficient of variation (CV) of prices. The CV is equal to the standard deviation of the stock price series divided by the mean or average price. So, if you are looking at the last 10 or 15 days of minute bars you want to know what the average price is as well as the standard deviation around that price. By comparing this number for several stocks you can determine which one is the most volatile and which one is least volatile. Lower variations equal less volatility.

2. Using the stock with the highest gain as a target, determine by what factor this stock exceed the low volatility stock in number of trades. So , if Stock A has 50 trades in two weeks and Stock B has 25 trades in the same amount of time the factor is 2.

3. Multiply this factor by the average trade gain of the target stock (Stock A), say it is 96 cents: 2*.96 = 1.92.

4. Divide the number calculated in the previous step by the average trade gain of the low volatility stock (Stock B), say 58 cents. The result is the number of shares of the low volatility stock you should trade to equal the gain of the high volatility stock: 1.92/.58 = 3.31. So to equal the average gains of Stock A, but without the volatility, trade 3.31 shares of Stock B.