OnlineTrading Monthly Results

HIS ONLINE STOCK TRADING PLAN, STRATEGIES AND IDEAS already tested and updated after a period of almost 12 weeks in a live trading environment, Marginal Stock Trader finally decided to close all his outstanding positions this month in preparation for a fresh start by August 2009 and this time with little bits of trading lessons learned here and there.

Start low
We said in one of our early post Make a Living As a Day Trader that we would start with just one trade per week and a very low weekly profit goal of 30 pesos. We managed to make 6 trades out of 12 weeks and even made a weekly profit of 29 pesos as of May 2009 on the average.

Delayed reaction
Beginning June 2009, we started to learn something about technical analysis, Japanese candlesticks, long position and short position, and Minor Top and Minor Bottom. We made decisions based on our understanding of technical indicators. We also tested the limits of our stop loss strategy based on the Minor Bottom of 270 pesos for Ayala Corporation stock at that time.

This month's result was a disaster. We got our first lesson in losing money through our biggest single loss so far of 370 pesos equal to about 4% of our trading equity. We looked away from our original stop loss rule and ended up selling at the bottom price of 265 pesos.

Add to this is our misreading of the trend that triggered a decision to go long on Ayala Corporation at 312.50 pesos, which turned out to be the top for an entry price.

Loss-limit system
By the 9th week since we entered our first order in live trading at the Philippine Stock Exchange through our online broker BPI Trade, Marginal Stock Trader added an important element in our stock trading plan that allows us to better put a cap on our losses: a loss-limit system.

This system placed our single trade loss limit at 2% and our maximum monthly losses at 6% based on our equity in our trading account. Our Weekly Total Equity Tracker shows that as of July 24, 2009, our month-to-date losses was cut by more than half to about 3% compared to 7% a week before.

Stock portfolio
For the period May 11, 2009 to July 27, 2009, our stock portfolio consisted of just one issue, Ayala Corporation, our online broker is BPITrade, and we only trade common stocks at the Philippine Stock Exchange.

BPITrade Fund Withdrawals

BPITRADE WITHDRAWAL PROCEDURE to get the money out of our trading account is easy. But for those new to BPITrade here is how to go about getting hold of your funds. By the way, this post is in response to a question we received from one of our readers:

Subject: Question lang po

From: Jun
Date: Wed, Jul 22, 2009 at 10:08 AM
Subject: Question lang po
To: Marginal Stock Trader


Sir Good morning po.

Pano po ba magwithdraw from BPI Trade? Di ba punta lang sa Services tapos Withdrawal, then indicate ung amount.
Automatic ba un mapunta sa account ko sa BPI Savings, un ginamit ko para magtransfer ng fund sa BPITrade using
Expressonline?

Matagal po ba bago matransfer?

Salamat.

Withdrawal Procedure
Correctly, our reader Jun had already answered in part his own question. Let me just add more details.

Step	Action
1	Sign-in to your BPITrade account
2	Go to Services
3	Click on the link Withdrawal Request
4	Fill up the amount to be withdrawn in figures and in words and click the Submit button.

The amount withdrawn will be available on your nominated beneficiary account (BPI savings or checking account with ATM card) the next day.

Weekly Total Equity Tracker

MARGINAL STOCK TRADER tracks his BPITrade trading account weekly equity balance through this post. For that purpose, we have adapted the system suggested by Jason Van Bergen in his Investopedia article Limiting Losses.

Week	Date	Cash Position	Stock Position	Total Equity		% Gain/(Loss)		Remarks
	17-Jul-09	10,000	-	10,000				beginning equity, this year
29	18-Jul-09	970	8,325	9,295		(7.1%)		stopped trading
30	24-Jul-09	6,816	2,900	9,716		(2.8%)		closed 2 of 3 positions
31	31-Jul-09	6,816	3,000	9,816		(1.8%)		ending equity, this month
32	07-Aug-09	9,567	-	9,567		(2.5%)		traded 30 shares, closed all positions
33	14-Aug-09	9,567	-	9,567		(2.5%)
34	20-Aug-09	9,567	-	9,567		(2.5%)
35	28-Aug-09	9,567	-	9,567		(2.5%)
	31-Aug-09	9,567	-	9,567		(2.5%)		ending equity, this month
36	04-Sep-09	9,567	-	9,567		-
37	11-Sep-09	9,567	-	9,567		-
38	18-Sep-09	9,567	-	9,567		-
39	25-Sep-09	9,567	-	9,567		-
	30-Sep-09	9,567	-	9,567		-		ending equity, this month
40	02-Oct-09	9,567	-	9,567		-
41	09-Oct-09	9,567	-	9,567		-
42	16-Oct-09	9,567	-	9,567		-
43	23-Oct-09	9,567	-	9,567		-
44	30-Oct-09	6,544	2,925	9,469		(1%)		bought 10 shares @ 300
	31-Oct-09	6,544	2,925	9,469		(1%)		ending equity, this month
45	06-Nov-09	6,544	2,950	9,494		0.3%
46	13-Nov-09	6,544	3,025	9,569		1.1%
47	20-Nov-09	6,544	3,025	9,569		1.1%
48	27-Nov-09	6,544	3,000	9,544		0.8%
	30-Nov-09	6,544	3,000	9,544		0.8%		ending equity, this month
49	04-Dec-09	9,481	-	9,481		(0.7%)		sold 10 shares @ 297.50
50	11-Dec-09	9,481	-	9,481		(0.7%)
51	18-Dec-09	9,481	-	9,481		(0.7%)
52	25-Dec-09	9,481	-	9,481		(0.7%)
	31-Dec-09	9,481	-	9,481		(0.7%)		ending equity, this month
	31-Dec-09	9,481	-	9,481		(5.2%)		ending equity, this year

Last updated: February 22, 2010
Marginal Stock Trader calculates his equity each week. This includes all of the cash in his BPITrade trading account, cash equivalents and the current market value of all open positions in the account. This weekly total is compared with the equity total on the last trading day of the previous month and, if we are approaching the 6% threshold, we prepare to cease trading.

In fact, when our 6% loss-limit level is breached, we may -- depending on our appraisal of the situation -- go even further and close all of our outstanding positions, and spend the rest of the month on the sidelines.

Employing a 6% monthly loss limit allows Marginal Stock Trader to hold three open positions with potential for 2% losses each, or six open positions with a potential for 1% losses each and so forth. For more, read our previous post Loss-Limit System for Traders.

Loss-Limit System for Traders

MARGINAL STOCK TRADER is not a stranger to losing money in online stock trading at the Philippine Stock Exchange trading his favorite stock Ayala Corporation. Of course, losing money in the stock market is inevitable for stock traders. And losing our hard-earned money is not an easy experience, which can be emotional at some point. Therefore, organizing a loss-limit system is critically important specially for small capital online stock traders.

Single trade loss limit
For our single trade loss limit, "a common level of acceptable loss for one's trading account is 2% of equity in the trading account" says Jason Van Bergen in his Investopedia article Limiting Losses. The capital in our trading account is our risk capital, the capital that we employ (that we risk) on a day-to-day basis to try to garner profits for our online stock trading business.

Monthly loss limit
"A general rule for overall monthly losses is a maximum of 6%" of our portfolio added Van Bergen. As soon as our account equity dips to 6% below that which it registered on the last day of the previous month, we stop trading.

Trading account
Marginal Stock Trader has a total of 10,000 pesos as of July 17, 2009 in his BPITrade trading account. This means when establishing our position, we should also establish a stop loss rule within a maximum of 2% loss of the total equity in our account. Our stop, however, may be anywhere from a 0-2% total loss. Thus, we set our 2% single trade loss limit at 200 pesos. Consequently, our 6% monthly loss limit is placed at 600 pesos.

Application of loss-limit system
Let us consider our trading portfolio of 20 shares of Ayala Corporation stock purchased at an average cost of 286 pesos or a total cost of 5,723 pesos. A loss of 200 pesos is equal to a net sales proceeds of 5,644 pesos. This is also equal to an exit price of 280 pesos pesos per share if all of our outstanding positions were to be closed all at once and the orders were to be placed with BPITrade. If done in two transactions, then our stop loss exit prices are placed at 265 pesos and 277.50 pesos.

Transaction Date	No. of Shares	Entry Price		Total Cost		Stop Loss Price
29-Jun-09	10	290		2,925.32		277.5
16-Jul-09	10	277.50		2,798.04		265
TOTAL	20			5,723.36		280

This arrangement fits well with our Marginal Stock Trader Updated Stock Trading Plan (For more, read Online Stock Trading Plan Updated).

Buy Weakness Trading Strategy

MARGINAL STOCK TRADER's post Lessons in Losing Money was the first time the concept of buy weakness was ever mentioned in this website. In that post, we talked about why we sold our Ayala Corporation stock at a loss. One of our stop loss rule was activated on June 30, 2009 when the price of the stock hit 265 pesos. But we also look at this decision as an opportunity to experience this buy weakness strategy.

Trading strategy
Buy Weakness is a "proactive trading strategy in which a trader takes profits by closing out of a short position or buying into a long position," says Investopedia. "Buy weakness strategy is used when the price of the asset being traded is still falling but is expected to reverse and move against the trader."

Profit and loss plan
When viewed in the light of our updated profit and loss plan, we said that we will be satisfied to buy the stock at 237.50 or lower. In the event, however, that the stock moved up contrary to our initial expectation, we shall enter a position at 277.50 pesos.

Entry price
From the day we sold 10 shares of Ayala Corporation stock on June 30, the nearest price to 237.50 pesos is the low of 260 pesos on July 3. After that date, the stock established a support price at 267.50 pesos for the trading period July 7 to July 15 and a resistance at 275 pesos.

Marginal Stock Trader's take is that the stock -- beginning July 6 -- was on consolidation mode for 8 trading days. This ended when the price of the stock broke past the resistance level on July 16, reaching the high of 280 pesos and closing at 277.50 pesos, which incidentally is also our stop loss entry price.

Trading plan
This point highlights the importance of having a definite plan and specific decision criteria. Nevertheless, there still remains an occasion when we come to a crossroad and needed to make a choice between two opposite paths.

What is the probability of the stock price falling to our desired level of 237.50 pesos on or before July 31? Was the breakout at 277.50 pesos closing price means were back to an uptrend now? What about the Marginal Stock Trader rule of maintaining a cash position -- to be used only when entry price is nearest the latest minor bottom -- that leans towards holding back the buy signal triggered by our stop loss rule?

Savings program
Marginal Stock Trader finally decided on July 16 in favor buying 10 shares or 1 board lot of Ayala Corporation stock at 277.50 pesos. Hence, our maintaining cash position shall come fresh trading capital accumulated through a savings program.

Profit and Loss Plan Review

PROFIT EXIT STRATEGY AND STOP LOSS RULE are among the most important components of Marginal Stock Trader's updated online stock trading plan. Professional traders admit that deciding on a "set of limits that determines the maximum loss or gain an investor will take on a stock", says Investopedia, is basic to stock trading to prevent excessive losses or to lock in profits. This is where our Profit/Loss Plan comes in handy.

Profit target
Our online stock trading plan has this profit exit strategy: simply add 35 pesos to our entry price, and exit the trade as soon as prices move up 35 pesos. We shall tweak this strategy a little bit by creating a more general decision criteria. We shall set the maximum gain we will accept at 12% above the price at which we bought the stock. Our goal is to lock in profits at this point.

Stop loss rule
In this rule, we aim to avoid mounting losses from holding on to a falling stock hoping for a rebound. Here, Marginal Stock Trader lists three options:

• First option, based on our updated Online Stock Trading Plan is a fixed peso amount: simply subtract 12.50 pesos from our entry price , and exit the trade as soon as prices move down 12.50 pesos.
  
• Second, percentage of our entry price: we shall set the maximum loss we will tolerate for our position at 5% below our entry price.
  
• Third option, percentage of Minor Bottom. This stop loss rule was briefly described in the article Stop-loss: Add science to the art of using stoploss by Jayesh Patel. As of June 30, 2009, we have identified a Minor Bottom at 250 pesos. We exit the trade as soon as price hits 5% below this level at 237.50 pesos.

Marginal Stock Trader has no prefererence over any one of these three options. But let us look at his latest trade. He decided to exit at 265 pesos his long position in Ayala Corporation -- bought at an average price of 299 pesos -- with expectation of this stock going down further. We will be satisfied to buy the stock at 237.50 or lower.

In the event that the stock moves up, contrary to our initial expectation, we shall buy the stock at 5% above our last selling price preventing additional losses. Hence, we shall purchase the stock if the price moves up 12.50 pesos.

Carrying out the plan
Our plan has a double requirement: we have to sell our stocks (1) if they fall to a certain level and (2) if they rise to a certain level. This plan must be implemented strictly or we expose our trading capital to more risk than what we might want to take.

Related Posts:
Lessons in Losing Money
Accumulating Shares of Ayala Corporation
Long Position in Ayala Corporation

Marginal Stock Trader Balance Sheet

BALANCE SHEET is a "financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time," says Investopedia. Marginal Stock Trader's Balance Sheet will be reported in this post and updated monthly.

Date		Cash		Receivables		Stocks		Payables		Capital		Profit/ (Loss)
May 31, 2009		874		2,713		-		-		3,500		87
June 30, 2009		3,561		2,614		5,967		2,925		9,500		(283)
July 31, 2009		6,816		-		3,000		-		10,000		(184)
August 31, 2009		9,567		-		-		-		10,000		(433)
September 30, 2009		9,567		-		-		-		10,000		(433)
October 31, 2009		6,544				2,925		-		10,000		(531)
November 30, 2009		6,544		3,000		3,000		-		10,000		(456)
December 31, 2009		9,481		-		-		-		10,000		(519)

Marginal Stock Trader's Balance Sheet is the easiest way to measure the achievement of our goal of making 12,500 pesos monthly trading profit.

Related Posts

Marginal Stock Trader SMART Goals and Plan
Developing Day Trading Strategy for Stocks
Online Stock Trading Plan Updated
Marginal Stock Trader Learns By Experience
Lessons in Losing Money