Wednesday, May 18, 2005

Some Numbers to Ponder

You have been given the gift of the holy grail of trading. But you must chose between two outcomes:

(1) Average 25% per trade at the rate of 10 trades per quarter;

or,

(2) Average 1% per trade at the rate of 5 trades per day.

No compounding with either strategy and all results are net after commissions. Which strategy do you chose?

Assuming 250 trading days a year and a starting balance of $10,000, the first choice generates an annual profit of $100,000. The second choice, the daytraders delight, generates an annual profit of $125,000. Too close to compensate for the aggravation of daytrading?

Let's alter the assumptions. In a big way. Everything remains the same, except you are not given the gift of the holy grail of trading. Now you have to figure out how to trade successfully for yourself, like the rest of us. Figure out a trading strategy that averages 25%, 40 times a year. Or figure out a trading strategy that averages 1%, five times a day.

On a $10 stock, 25% amounts to $2.50.

On a $10 stock, 1% amounts to $0.10.

Think about it, if you have to figure this stuff out for yourself, and you do, which goal is achievable, and which goal is a dream?

3 comments:

Jack Cory said...

Hi Allan,

It may impart beneficial aspects to your sleep to know that I, regardless of what all others in this world are doing, am long a bit of GOOG.

BTW: I like your blog. Does the King of France have a separate blog?

Jack Cory

Allan said...

Unfortunately, the King of France has had to abdicate his throne, a most sensitive matter of the heart, soon to me made into a major motion picture....we're interviwing starlits now.

Allan said...

PS to Jack, I-Babe, who now trades by my side, says, "Hi Jack!"