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What's New !
August 30, 2005
This newsletter is for
educational purposes only and subject to Incredible Charts Terms of Use.
Incredible Charts Pro
USA: Exchanges &
Indexes
You can now set your default exchange as US Indexes & Exchanges (exchange code
"us") which covers US Indexes (Exchange Code in), NYSE (Exchange Code
ny), NASDAQ (Exchange Code nq) and AMEX (Exchange Code mx):
Searches can now be done on "us" as the exchange code for US Indexes, NYSE, NASDAQ
and AMEX.
For example, searching on * us will return all securities and indexes within US Indexes (in), NYSE (ny), NASDAQ (nq) and AMEX (mx):
In a similar fashion you can load a security or index via the Securities Input Box by entering "_us" as the Exchange Code. For example, entering
msft_us in the Securities Input Box loads Microsoft
(msft_nq):
Crosshairs
Crosshairs have been revamped to overcome issues raised by members.
Activate by selecting View >> Crosshairs.
No adjustment is needed when using the Zoom feature or when placing Trendlines and Captions.
Crosshairs no longer require the mouse-down action: they are be visible wherever you hover your mouse. Keep in mind that they will only show when
Incredible Charts is the active application. If you open Internet Explorer and it is the active application, the crosshairs will not show until
Incredible Charts again becomes active. To achieve this, click once anywhere on the application ... even within the charting area.
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The first in a series of articles on risk management:
Money Management and the 2% Rule
The 2% rule is a basic tenet of risk management (I prefer the terms
"risk management" or "capital preservation" as they are more
descriptive than "money management"). Even if the odds are stacked in
your favor, it is inadvisable to risk a large portion of your capital on a single
trade.
Larry Hite, in Jack Schwager's Market
Wizards (1989), mentions two lessons that he learned from a friend:
- Never bet your lifestyle; and
- Always know what the worst possible outcome is.
He goes on describe his 1% rule which he applies to a wide range of markets.
This has since been adapted for equity markets as the 2% rule:
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The 2% Rule
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Never risk more than 2% of your capital on any individual stock.
This means that a run of 10 consecutive losses would only consume 20% of
your capital.
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This does not mean that you need to find 50 different stocks to trade. Your
capital at risk is normally far less than the amount invested.
Applying the 2% Rule
- Calculate 2% of your trading capital: your Capital at Risk
- Deduct brokerage to arrive at your Maximum
Permissible Risk
- Calculate the Risk per Share:
Deduct your stop-loss from the buy price and add a provision for
slippage (not all stops are executed at the actual limit).
For a short
trade, the procedure is reversed: deduct the buy price from the stop-loss before adding slippage.
- Calculate the Maximum Number of Shares by dividing your Maximum
Permissible Risk by the Risk per Share.
Example
Imagine that your total share trading capital is $20,000 and your brokerage
costs are fixed at $50 per trade.
- Your Capital at Risk is: $20,000 * 2% = $400 per trade.
- Deduct brokerage, on the buy and sell, and your Maximum Permissible Risk is: $400 - (2 * $50) = $300.
- Calculate your Risk per Share:
If a stock is priced at $10.00 and you want to place a stop-loss at $9.50,
then your risk is 50 cents per share.
Add slippage of say 25 cents and your Risk per Share increases to 75 cents per
share.
- The Maximum Number of Shares that you can buy is therefore:
$300 / $0.75 = 400 shares (at a cost of $4000)
To read further - Click Here
Or go straight to one of the sub-topics:
Regards,
Colin Twiggs
They say that you never know what you have until you
lose it.
This is not true, you know what you have;
losing it is what
makes you appreciate it.
~ Unknown.
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