So you've seen an Initial BUY Signal (IBS) from our charts and want to climb aboard. Here are some time-tested rules used by the experts for you to use to calculate how you will invest and trade to minimise your risk. It will help you avoid common mistakes made by all novices. Using the system below and our BUY/SELL signals will virtually guarantee you a profit in the medium to long term!
MONEY MANAGEMENT
- Pick an amount to start trading with (say R100,000) - this is your trading capital (TC)
- You should risk no more than 2% of your TC on a single trade (eg R2.000) This is trade risk capital (TRC)
- You should not risk more than 6% of your TC on all your open trades. This limits you to 3 trades open at any one time.
- Multiply the STX40 price (say R25.00) by 5% to get a per share stop-loss (SL). In this example its 5% of R25.00 = R1.25
- The number of shares you can buy for this trade is TRC/SL (R2,000/R1.25 = 1,600 shares)
TRADING STRATEGY
- When we issue an IBS, get your money together and fill in the purchase forms to fax to Satrix.
- When we issue a 1st confirmation signal, purchase your shares. Your trade will probably go through the following day.
- When the trade goes through, make a note of your purchase price (PP).
- After your purchase you must watch the share closely each day as we are in the "risk period".
- Sell you shares immediately if price drops below PP-TSL (R23.75)
- As the share advances beyond 6% of PP, set a mental "trailing stop-loss" of 5% (TSL)
- If the share drops below the previous days TSL you can take profit or hold-out.
PYRAMIDING
- We will issue 2nd, 3rd and 4th confirmation signals as trend is strengthened/re-enforced.
- For each of these signals, buy another tranch of shares using the rules above.
- This is a secret used by the worlds top traders even if it sounds counter-intuitive!
SELLING
- When we issue 1st SELL signal, you must sell your first tranch of shares
- When we issue 2nd SELL signal sell all your tranches (close out all your positions)
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