A 60.75% gain in a week? This sounds too good to be true!

by , 22 November 2018
A 60.75% gain in a week? This sounds too good to be true!
Q. Timon in the previous email from Red Hot Storm Trader, you mentioned that you banked a 60.75% gain in a week. How did you calculate this because it sounds too good to be true?
 
 
A.  To explain how we managed to bank a 60.75% gain, first I’ll copy and paste the SMS I sent out.
  
Go Short (Sell) All Share Mini ALSI Index (ALMI) CFDs
 
Entry: 46,677
 
Stop loss: 48,000
 
Take profit: 44,692
 
Margin per CFD: R3,267
 
Let’s get the jargon out the way.
 
The Margin per CFD is simply the amount of money you’ll deposit to enter into your trade.
 
In this case you would have paid R3,267 to sell one CFD contract.
 
With each ALMI CFD you sell, you’ll essentially risk or gain R1 for every one point that goes for or against you…
 
We also know that between our entry level and our take profit level, gives us a difference of 1,985 points.
 
In this case, the ALMI moved 1,985 points for us which banked us a R1,985 gain.
 
So if we deposited R3,267 into our ALMI trade and banked a R1,985 then what percentage gain would we have banked?
 
Percentage gain = (R1,985 ÷ R3,267)
                           = 60.75%
 
This means we would have banked a 60.75% gain of what we deposited.
 
To sum it up quickly. 
 
1. Calculate the difference in points between the take profit and the entry level and multiply it by R1 per CFD)
2. Divide the initial deposit by the amount of money banked. 3.
 
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Q. I am a new trader and I’m super excited to trade the ALMI (All Share Mini ALSI Index). However, I want to know how many contracts I’ll need to buy to not risk more than 2% of my portfolio.
 
I have an account size of R30,000. This would mean my risk would be R600 (2% X R30,000).
 
I wish to buy the ALMI at R48,000 and set my stop loss at R47,500. How many CFDs would I buy to not lose more than 2% of my portfolio?
 
A. There are only two steps you’ll need to calculate the number of ALMI contracts you’ll trade.
 
Step #1: Calculate how many points risked in the trade
 
This is simply calculating the difference between your stop loss (48,000) and your entry level (46,677).
 
Points risked = (Stop loss – Entry)
                      = (47,500 – 48,000)
                      = 500 points
 
Step #2: Calculate how many ALMI contracts you should buy!
 
You’ll now need two numbers to calculate the number of CFD contracts you’ll buy.
 
The first is the maximum loss that you’re willing to take on your ALMI trade, which is R600, and second is the points risked (500 points)
 
No. of contracts per ALMI trade:
 
                                        = (Max loss in Rands per trade ÷ Points risked per trade)
                                        = (R600 ÷ 500 points)
                                        = 1 ALMI contract.
 
NOTE: The true answer is 1.2, but because you can’t buy decimal points of the ALMI, you’ll just round it down to 1.
 
This means, to risk less than 2% of your portfolio in your ALMI trade, you’ll simply buy one ALMI contract in this specific trade.
 
It’s great you asked this question because I see an ALMI trade lining up as we speak.
 
Q. “Your last email mentioned that First Rand had hit stop loss of R64 This did not reach R64.00 on my Standard Bank online trading website and therefore my trigger to buy at R64 did not materialize and I am still in. Care to comment?”
 
A. Each trading platform have different Bid (buy) and Offer (sell) prices traded.
 
Some have wider bids and offers where the liquidity (buying and selling prices) in the market is more volatile and has a higher range.
 
And so because the stop loss hit and got me out of my trade, I sent out a message to inform other traders on my position.
 
If your platform has lower bid and offer prices, this means you may still be in your trade.
This gives you a better chance for the trade to work out on your side.
 
As for me, I've already written off the trade picked myself up with ease and now looking for the next trade...
 
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________________________________________
 
NOTE: The next question is of an intermediate trading level
 
Q. “Timon. what does volume mean when you place an order. Please advise as to which number of volume should I select. I don't want to make any mistakes.”
 
A. There are only two types of Volume numbers I am aware of when you trade.
 
The first is the number of shares available to buy or sell according to the bid and offers.
 
If you’re looking to buy shares and the volume (on the offer) shows 50 at R50 per share, this means you can only buy 50 shares at that price.
 
If you’re looking to buy 100 shares, you might need to wait until your order is filled where another willing seller is prepared to offer more volume of shares at R50.
 
The second option for volume is if you're trading shares via Spread Trading.
 
Volume with Spread Trading is the "Risk per cent move". If you choose a volume of 10 cents, this means every 1 cent the share price moves for or against you, you’ll lose or gain 10 cents.
 
If the share price moves 10 cents against your direction, you’ll be down 100cents (10cents X 10 cent move).
 
In summary.
 
1. Volume can either show you the number of available shares to buy or sell at a specific price
2. Volume is the chosen “Risk per cent move” when you Spread Trade
 
“Wisdom yields Wealth”
Timon Rossolimos,


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