Marginal Stock Trader Learns By Experience

MARGINAL STOCK TRADER learned recently by experience that online stock trading with a minimum stock position of one board lot or 10 shares of Ayala Corporation stock requires a different set of rules that may never concern adequately funded stock trading operations.

Among the rules that matter at the marginal level are those relating to:

• monthly maintaining Average Daily Balance (ADB) of our BPITrade settlement account;
• stop-loss and profit-taking considerations;
  
• stock trading strategy.
  

Maintaining Cash Position
Our online broker, BPI Trade, requires a monthly maintaining Average Daily Balance (ADB) of 500 pesos for our BPITrade settlement account with BPI Direct Savings Bank. As a non-ATM deposit account, the BPITrade settlement account earns annual interest according to the amount of daily balance:

• 0 - 499 pesos - 0.000% p.a.
• 500 and above - 1.750% p.a.

Suggested Reading: BPI Trade Settlement Account

Stop Loss and Profit Target
Our stop loss rule based on our updated Marginal Stock Trader Online Stock Trading Plan is as follows:

"Our stop loss rule shall be expressed in a fixed amount of 12.50 pesos per share of Ayala Corporation. We simply subtract the peso amount we specified from our entry price , and exit the trade as soon as prices move down 12.50 pesos."

For our profit target, here is what we have:

"Our profit exit strategy shall be expressed in a fixed amount of 35 pesos per share of Ayala Corporation. We simply add 35 pesos to our entry price, and exit the trade as soon as prices move up 35 pesos."

These rules are useful only when our stock position or the number of shares we maintain is more than one board lot of 10 shares for Ayala Corporation stock.

Here is what may actually happen.

Let us refer to the stock trading transactions found in Marginal Investor post Trading Profits Of A Swing Trader. For his first trade, entry price on February 23, 2009 is 202 pesos per share and exit price on March 27 is 220 pesos. For his second trade on April 1, entry price is 204 pesos and exit price on April 17 is 224 pesos. Marginal Investor boasted of as much as 8% in trading profits.

Profit-taking is good up to that point in April. The problem, however, is that Marginal Investor wanted the same profit target for the third time and waited for an entry price very close to his two previous trades. The price went to as low as 214 pesos on April 21, but he did not enter a trade. The price never looked back and went on to as high as 285 pesos a month later.

The hard lesson is for the beginning online stock trader with only one board lot to play, never trade that one board lot. Keep it as a kind of stock position maintaining balance, or an insurance policy, or a fallback. To be able to trade, make haste to accumulate enough money and buy another board lot.

In fact, this is what Marginal Stock Trader did last June 18, 2009. We increased our trading capital by another 3,000 pesos to have a total fund of 6,500 pesos. On the same date, we bought 10 shares of Ayala Corporation at 285 pesos per share based on tempting entry signals. We now have a stock position of 20 shares and a cash position of 560 pesos with BPI Trade.

Stock Trading Strategy
Like what we said in the previous section, our online stock trading plan will apply to the second board lot of 10 shares equal to one-half of our stock position. This is aligned with our risk tolerance of 50% loss of capital stated in our online stock trading plan.

Marginal Stock Trader has identified his own resistance and support levels based on Minor Top and Minor Bottom. As of June 18, we placed our Minor Top at 317.50 pesos and Minor Bottom at 270 pesos.

Better Strategy and Better Profits
We have improved our online stock trading strategy for the beginning stock trader. This should result to better performance and better stock trading profits.