Let’s choose for this a GRZ Gold Reserve Inc. action. Our goal is to win as much on an upward trend.The first step:
Note that the action lately has had consistent growth; the current situation so that we can appreciate that it is time for a good market entry point.
The second step
It’s important to observe chart formations read on chart. The fact that you see a pattern with a strong new growth you can assume that previous ascending trend will continue.
Phase I – entry on the market with GRZ action
Recommendation is that the input position is at 3.62 per share but before entry must choose the parameters of this investment:
1. Determination of stop loss
On the spot market this can be done on paper or mentally, and on the futures directly by software. The price is set at SL 3.2 to protect your investment and correspond to the price level below which it if a price touches set protection will not let it down more.
If the price lowers under SL then you will close the investment and will automatically exit the market. It should be said that not always this SL is executed that’s why it should be checked from time to time. Examples of no execution of SL orders placed in this sense are either a negative gap or the serial number is greater than the counterpart. We believe that SL is well established.
2. Calculation of a risk (Money management –MM)
Some investors have a higher percentage of gains versus losses, but if they do not use money control methods and only once, then they can lose everything they have won the last five days for example.
In this case we will present the simplest MM method namely the calculation of the no. of actions that must be purchased.
It is a simple mathematical formula: Suppose we have a capital of $ 10,000 and we decided on one investment we can lose 5% of capital, or $ 500. In this way we calculate how many shares we can buy at this level of risk. It can be reduced to 2% or increased to 10%.
Let’s remind that the entry price is 3.62, and stop loss is 3.2, in this case loss per share would be 3.62 – 3.2 = $ 0.42. Since we assumed that to all invested capital accept a nominal loss of $ 500 will calculate no. of actions corresponding to the assumed loss through dividing a loss per action to the total assumed loss of capital and we get 500/0.42 = 1190 shares.
The same can be calculated for FTS market, but the loss that we suggest should be 2%, and exposure in the futures market should be lower.
With these two well-established elements – SL and MM = no. of invested shares more important first step towards a successful investment is made.
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