ADL Properties & Construction (Last 6 months)
28 September 2007
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12 September 2007
11 September 2007
10 September 2007
08 September 2007
Cost of Capital Loss
| Capital: | $10,000 | ||
| Trade(s) | $7,500 | $9,000 | Difference |
| 1 | $7,875.00 | $9,450.00 | $1,575.00 |
| 2 | $8,268.75 | $9,922.50 | $1,653.75 |
| 3 | $8,682.19 | $10,418.63 | $1,736.44 |
| 4 | $9,116.30 | $10,939.56 | $1,823.26 |
| 5 | $9,572.11 | $11,486.53 | $1,914.42 |
| 6 | $10,050.72 | $12,060.86 | $2,010.14 |
| 7 | $10,553.25 | $12,663.90 | $2,110.65 |
| 8 | $11,080.92 | $13,297.10 | $2,216.18 |
| 9 | $11,634.96 | $13,961.95 | $2,326.99 |
| 10 | $12,216.71 | $14,660.05 | $2,443.34 |
Description
Capital of $10,000. One practice cut loss target of 10%, the other only force cut loss at 25%. (Force cut loss is because you are forced to cut loss because your emotion cannot take the falling of your counter's price). The difference loss of capital is $9,000 - $7,500 = $1,500. The table above shows how critical is this $1,500 difference.
Let says after a bad trade you begin to consistently earn 5% from subsequent trades, it takes 6 trades to regain the capital for the higher capital loss compared to 3 trades of the lower capital loss.
Let say no consecutive winning streak. Below is table for 2 bad trades, the third trade suffers another loss (one continue to practice 10% cut loss and the other at 25% force cut loss).
| Capital: | $10,000 | ||
| Trade(s) | $7,500 | $9,000 | Difference |
| 1 | $7,875.00 | $9,450.00 | $1,575.00 |
| 2 | $8,268.75 | $9,922.50 | $1,653.75 |
| 3 | $6,201.56 | $8,930.25 | $2,728.69 |
| 4 | $6,511.64 | $9,376.76 | $2,865.12 |
| 5 | $6,837.22 | $9,845.60 | $3,008.38 |
| 6 | $7,179.08 | $10,337.88 | $3,158.80 |
| 7 | $7,538.04 | $10,854.77 | $3,316.74 |
| 8 | $7,914.94 | $11,397.51 | $3,482.57 |
| 9 | $8,310.69 | $11,967.39 | $3,656.70 |
| 10 | $8,726.22 | $12,565.76 | $3,839.54 |
| 11 | $9,162.53 | $13,194.05 | $4,031.51 |
| 12 | $9,620.66 | $13,853.75 | $4,233.09 |
| 13 | $10,101.69 | $14,546.44 | $4,444.74 |
You only able to break even after 10 consecutive 5% gains trades for 25% force cut loss trader but only takes 3 trades to break even for the trader who practice 10% cut loss.
Moreover, for 3 bad trades in 10 trades case, 20 trades to break even if you continue to force cut loss at 25%. So, what if more than that? It takes you ages to get back what you have lost just because you do not have cut loss price.
07 September 2007
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