ROI Optimization... Ignoring Time Lines.

Perhaps my post should have been titled, Near Miss with IRM as this was entered on Monday right shortly after missing the $23.00 high in IRM that day, I just forgot to actually post it:

Today I dropped a stock off of my hit list (CLI) due to it's price being higher than my optimum stock price and added one (IRM) that, had I been one hour earlier I would have gotten into a trade.

Actually I would have been in a nice reversal trade on that one as it hit the previous long position target and the next short trade entry this morning.

Due to my fixed target sizes ($1.50 for less than $20 stocks and $3 for over $20) the optimum trade size is a $20 stock for a long entry and $23 for a short entry. This produces an ROI of 15% and 13% respectively.

A $15 stock can produce a 10% ROI which lowers as the price approaches $20. Anything higher than $23 the ROI just heads down as at $30 it is 10% as well. I figure anything with a 10% or better ROI is fine right now.

A side note on this is that while the stock may be at that sweet spot it will not stay there. The idea here is not to just trade at the $20-$23 all the time but to use compounding in order to grow the position size as the price moves away from that ideal price. Starting out with a higher ROI just gets it moving a little quicker.

Ultimately it is all about the cash-flow more than the ongoing per trade ROI.

Starting with a $1,000 position size and making trades that gain 10% to 15% per trade it adds up.

I mentioned my relative ranking system before so I won't get into details now but the new addition is tied for top spot at 21. I heavily weighted the price factor to favour anything north of $20 decreasing as the price increases to $30 yielding a zero for the last price ranking.

The followup is that I missed a really nice entry on that particular stock at that particular time as evidenced by the chart following:

Note the peak on Monday, probably about an hour before I entered my order firm at $23.00. On Tuesday I considered getting in in the mid $22.95's but decided to hold tight, hindsight.

The previous long entry that I mentioned in my post was at $20 to sell at $23 and short immediately at $23. Had I been long I might have missed the short due to the fast peak as I cannot place a short order while holding a long position without having two separate trading accounts (next year I will do that with longs in the TFSA)

Jeff.