Hi, I am using an earnings strategy basically taking scalping positions on the open in high volume/ liquid stocks. Does anybody know how to calculate the biggest position that can be taken with this? In regard to this I mean the biggest position you can take before its a struggle to get in and out without moving the price too much? I have seen a rule of thumb could be 1% of the average daily volume, but if anyone has any actual experience with this it would be great to hear? Thanks
Every stock is different. Every day is different. Every trade is different. You'll know the answer to your question only through your own experience. Push the limit until you reach it.
High volume liquid stocks won't give you a problem unless you are trading millions of dollars per trade.
I look at the dollar amount traded per minute as a rule of thumb: $/min = Price * Vol20DMA / 390 where Vol20DMA is the 20-day moving average of the daily volume and 390 is the number of minutes in a trading day. If my trade value is significantly less than this amount I know it's going to have little impact. As an example, AAPL trades about $16.5M per minute. Unless you have an extremely large account your trade will have no impact.
Thank you all for your replies, Gary I am going to have a look at your rule of thumb and as well lindq hopefully along the way I can gain a bit more experience and get more of a feel for the market when I trade with a bigger size , Cheers guys