Good point. I should have specified. All the trades are for the same amount. Make it $1,000.
what is ur trading cost??? chahine
Let's assume we're using AmeriTrade costs. $10 in and $10 out for trades for a total of $20 per trade.
well with both 8 % (80 + 20 for each trade)loss u will have a total loss of 200$ and with the gain of 30% u will make 280 (1000*.30)-20 so u will actually have a net gain of 80$ on ur initial investment.... not bad if u are trading in and out at a quick pace.... well i did this very fast so i hope im right.... chahine
What about taxes?
well i don't know US tax rules i trade with an account where the money i make is not taxed... but the tradeoff to that is my trading costs are higher... 14.99$ per trade in and 14.99$ per trade out. damn cost me 30$. nuts but at least don't have to worry about tax. also one thing u could worry about is inflation!!! The present and future value of ur profit!!! chahine chahine
Plus it depends on the order of the trades. If you lose 8% two times in a row you have much less capital for the third trade. First Trade: $1,000.00 $990.00 minus the commission. - You get stopped out at 8%. - $990 x 8% = 79.20. - We close out the trade for $10. - We now have $917.10 - $10 or $907.10 of capital for trade number 2. Second Trade: $907.10 - $10 commission = $897.10 - Stopped out at 8% - $897.10 x 8% = $71.77 - $897.10 - $71.77 - $10 for commission = $815.33 for Trade Three - We now have $815.33 for our Third Tade - $10 for commission = $805.33 - Finally a Winner! We gain 30% for a gain of $241.60! - We have capital of $1,046.93 and we close the trade and deduct $10 - a new total of $1,036.93 You have to pay taxes in the US on the gain of $36.93 (usually 38% or so - so deduct $14.03 for a final net gain of $22.9. So in answer to the original question we have indeed made money and created wealth!
That is true. Thanks for taking the time to explain. That is a great formula for keeping track of overall gains and losses.
right forgot about the different order of purchase ..... good call on that one... chahine
So what have we learned here? What happens if we gain 30% on the first trade and then lose 8% twice?
u make more money if u loose after a nice gain... the order in which u loose does matter how u make money or how much funds u have available to invest in the next stock. chahine
Let's see using the above example: only we reverse it. The 30% gain comes first followed by the loss. 1) $1,000.00 - $10 - $990 x 30% += $1.287 - $10 = $1.277 2) $1,277.00 - $10 - $1,277.00 x 8% -= $1,174.84 -10 = $1,174.84 3) $1,174.84 - $10 = $1,164.84 x 8% -= $1,071.65 - 10 = $1, 061.65 $61.65 gain x 38% -= $38.22 I think it makes a big difference what happens on the first trade as it relates to capital creation.
[quote:831d6a914c="HappyHarry"]What about taxes?[/quote:831d6a914c] You pay taxes? :wink:
If you lose money on the first trade you will almost have to go into your pocket and make yourself whole again before trading. But our exercise also proves what William O'Neill has preached for years: If you have an 8% stop loss, you can lose on 2/3 trades.
You suck if you lose on two out of every three trades.
Heheh good way to put it :) we all make mistakes but we learn from them
Even luck is 50/50.