Control Trading Outcomes
So how can we optimize monthly performance? The answer lies in controlling the outcomes of individual trades. Suppose there are four (4) stock trades each with an outcome of Gain / Break Even / Loss. Of the four (4) trades there are eight (8) possible favorable outcomes and four (4) losing outcomes when we consider break even as a favorable outcome. The strategy is to 'cover' the field of possible outcomes with odds in your favor for a gain or breakeven outcome. Stocksaurus facilitates this strategy by finding trading opportunities where the odds are in your favor. You rack up consistent small gains instead of hoping to hit a big one.
Achieve Consistent Modest Gains
Many traders try to achieve gains in excess of 20% from a single position. This often leads to disapointment as the trades often become stuck, or worse, a loss. If you have faith that your position will double there is another element in play - and that is Time. How long does it take to make that 20% or more gain? The longer you hold a position, the lower is your average monthly return. If we knew that time will always provide the gains we seek we would be using a buy and hold strategy. If you want to make 20% or more per trade Stocksaurus is not for you. Stocksaurus is designed to find high probability price moves typically under 10% within a 10 day period. The strategy is intended to achieve consistent but modest gains. A portfolio that can achieve 0.5% gain per trading day will double in value in a year. A dedicated Swing Trader can expect annual returns of 25% or more on their portfolio.
Balance the Risk
To reduce the impact risk of a single trade going against you; it is necessary to divide your portfolio capital into equal portions to trade separately. The number of portions should scale according the total trading capital in your portfolio. So if you have $20,000 to trade you may want to divide your capital into 4 equal portions and have up to four trades in play. If you have $50,000 or more in your account you may want to have 5 to 10 equal portions for trading individual stocks. In choosing your trading candidates you may want to diversify sectors to further reduce the impact risk of a sector related event.
To use your gains for compounding you can treat each portion of your account as a separate account. After you sell one stock you use the cash balance of that portion of your portfolio for the next trade. This will allow you to apply the trading strategy to a growing capital pool. The result - compounded growth from consistent, but modest, gains.