Right alders my attempt at illustrating the 2*2 trading system the big boys use.
Firstly got to pick a stock......go for CEY...... our kid who doesnt know much about stocks is trying to learn. (hard work)and he rekons its a legal win in the courts (i have doubts)
Right for illustrative purposes say we have a £100,000 pound portfolio cash plus holdings.
The chart as end of close friday is this.............
Right the maths equation is this ..................T=PR/(E-X) where T is the size of the trade, P is the portfolio size (cash plus holdings), R is 2%, E is the entry price and X is the pre-determined stop-loss exit price.
SO if by definition we want to limit loses to 2% of our portfolio we know we want to limit loses to £2,000 quid.
The chart show us we have mid term support at 50p
So to limit our losses to £2,000 quid we know present price of stock is 52p therfore 2,000.00 divided by 52.00 = 3846 shares we buy. Our target price is 150p per share minimum. (here we talking about £1 point per share on a spreadbet if it were £10 point per share you divide 3846 by 10 etc etc.) Your target price and stop loss would obviously move in proportion to the size of your bet.
If for example you were betting £200 per point youd have a stop loss 10 points lower than present SP at 42p and your target SP would be 72p. Always remember to start off by finding your pre-determined stop loss. In my above example ive used
market conditions as presented on the chart. For example you wouldnt normaly let the SP go much under that support at 50p and youd just be losing your money.
So basicaly we have here the foundation of the system here as I have posted it.
Heres long term chart of CEY..........
What you have to remember if things go wrong in the market eg, looks like we have a big turn down ready to happen close and take profit quickly. Use ones own discretion.
Note I dont use 2% of my folio i use 0.75% which makes the SP movement more volatile but suits my EDGE.
As I pointed out friday I use also another SET UP for getting in on a stock for entry purposes.
What you also have to remember is that investors traders have different ways of going in for a stock rather than using support some people just have a money figure in mind as to how much they are going to lose.
Any question alders just ask. I think ive got a heavy week ahead with my aunt in hospital etc. etc.