When we start investing in the stock market, it takes a tremendous amount of courage to put the bulk of our savings into the market, hoping to take on a risky investment that will yield the high returns we all expect.
However, most of us do not anticipate any potential losses that our investments may incur. Losses are unavoidable. We must learn how to protect our capital as carefully as our own children. Put our capital on the right path, hopefully, get more profit out of it, and most importantly, we can't lose it.
By carefully choosing stocks with the right analysis and knowing the right trading strategy for your fund size, you can maximize your profits and protect them from huge losses. Whether you are a beginner or have been trading the stock market for a while and still find your trading results unsatisfactory. You need to join this live stream and let us share with you how to use your funds more efficiently and know how to use the limited funds we have.
We'll look at different capital sizes for RM20k and below, RM50k and below, RM100k and below, and what we can't do and profit potential with the right trading strategy that suits your capital.
In this blog comparison, we will be using our own method of position sizing, if you want to know more about our position size and why we like it, you can follow the link below to learn more.
Understand The Cost
Many investors start investing in the stock market with a start-up capital of around RM20,000. With this much capital, most of us would stay away from RM2 per share and above. Because you can't buy more units to cover brokerage fees, the main reason investors don't choose stocks in this price range is the slower profit generation.
Many investors start investing in the stock market with a start-up capital of around RM20,000. With this amount of funds, most of us would stay away from shares of RM2 and above per share as we would not be able to buy more units to cover brokerage fees. And because of its slow profit generation, it is also the main reason why investors do not choose stocks in this price range.
Typically, 20k will prefer penny stocks because they can buy more and for a half-cent increase in price, they can make more profit.
RM 5,000 ÷ RM 0.30 = 16,666 = 16,000 units/ 160 lots
RM 5,000 ÷ RM 2.00 = 2,500 units/ 25 lots
When price up RM 0.01,
RM 0.31 = Profit +RM 160
RM 2.01 = Profit +RM 25 only.
But of course, when the price falls, you will lose more.
If you are trading this way, you are not 100% right or wrong. It is true that the profit margin per price tick (1 tick means RM0.005 for RM0.995 & below, RM0.01 for RM1 & above) for expensive stocks. With the above example, the trading fees for RM2 trade, buy & sell is around RM50 [RM25 each transaction, based on 0.01% or RM10 whichever is higher]. This means you will need to have the stock move 3 ticks (RM0.03) in order to make a RM25 profit. Unless you are going for midterm to long term holding, then you should be able to cover the fees due to more price up. On the other hand, the RM0.30 trade can cover the trading fees with just RM0.01 up & with a profit of RM135.
This also means that lower funds will make it difficult to day trade on the Kuala Lumpur Stock Exchange as there is less margin to cover trading fees. Because intraday trading is not the same as buying and holding for a few days, waiting for the stock price to move higher. Most of the time, intraday trading requires us to exit with a very small price difference. If the price of stocks of RM2 and above rises by less than RM0.03, intraday traders will suffer more losses.
Of course, the price volatility of RM2 stocks is higher than that of penny stocks. So some of you may think that it's perfectly achievable to have a RM2 stock up to 3 ticks in a day, as the price per tick is RM0.01, not RM0.005 per tick like penny stocks. Don't get too excited, we need to look to the downside, if penny stocks drop RM0.01, then we will lose - RM160 + -RM50 [trading fee] = total loss - RM210. Suppose you make RM0.04 from RM2 stock even if you profit from RM2 trade. Your net profit will be RM100 - RM50 [transaction fee] = +RM60. The total net loss for both trades is RM60 - RM210 = -RM150 and you are still losing money in the stock market.
The reason is that the position size is different for each trade because the allocation of funds is the same for each trade, but you buy more penny stocks and less RM2 shares. Profit or loss per tick depends on how many shares you bought.
To avoid the above situation, the profit from the RM2 trade cannot cover the RM0.30 stock. We determine our position size by setting the same number of units for all trades.
Starting Capital X 0.4 = no. units per trade
RM20,000 X 0.4 = 8,000 units per trade
RM2 x 8,000 units = RM16,000
RM0.30 x 8,000 units = RM2,400
RM2 stock = about RM65
RM0.30 stock = about RM25*
*Minimum brokerage fees, RM10.
When price up RM0.01,
RM0.31 = Profit +RM80 - RM25 = RM55
RM2.01 = Profit +RM80 - RM65 = RM15
With the above position size, we can still make a profit even if the price goes up by 1 tick, and we don't have to worry or keep hoping for the price to go higher to cover the cost. We cannot control the magnitude of the price movement, but we can control how much we can profit/lose on each price movement in a trade. Therefore, our decision to enter or exit is not subject to transaction fees.
This approach to position sizing also allows us to de-risk the stock market and protect our capital by not exposing too much penny stock risk. Of course, the return will be slightly lower than in the previous example. Since fewer units of stock are purchased, each tick's profit/loss decreases.
But we still prefer this approach to position sizing, not only because it reduces our risk, but we can achieve better consistency in long-term profitability, with minimal losses each time, and maximum gains when we hold the right stocks [depending on your analytical skills]. Also, we are not here to bet once and hit a home run in the stock market, we are here to master the skill of generating secondary income from the stock market, which will be our lifetime skill, so we need to know how to survive and benefit from the market.
However, we cannot deny the fact that funds are limited. Even if we could reduce our risk exposure, entering a share price of RM2/share would have taken up 80% of our capital, leaving only RM4,000, RM300 - RM400 after deducting potential transaction fees for us to sell the exchange. We only left RM3,600 in funds for the second transaction. This means that we cannot make a second trade above RM0.45.
The Best Trading Method
It seems as though intraday trading and quick trades in and out will free up capital constraints. Yes, if the market you trade is volatile and active like some US stocks. Otherwise, you'll be sitting in front of a monitor from 9am to 5pm waiting for the right deal. Even if you are able to earn RM0.03 profit per trade per day for 10 trading days per month (assuming the other 10 days are offset by losses and profits), you will earn RM240 per day, the 1-month income of RM2,400, on an average income of RM80 per day. For the same amount of work hours you spend each day, you might be able to earn more driving Grab.
When we have limited funds to trade in the stock market, we should always consider it a secondary source of income. Therefore, we need to know how to make profits more efficiently. Quitting your main earning job and trading from 9 to 5 for only RM2,400 is not a wise choice. Therefore, day trading will not be suitable for initial funds of RM20,000 and below.
Therefore, we need to find a way to generate income from the stock market with less participation time and almost the same return of RM2,400. So we can get the total income of primary income and secondary income from the stock market.
We can plan short-term trades (holding periods of several days) or medium-term volatility (holding periods within one year). If your day job doesn't take up much of your time and you can spare a few minutes each day to check the market, then you might consider short-term trading. But if you always need to devote yourself to your work, a mid-term swing is a better option.
Now, we know how to choose the right trading method for us. The next thing we need to know is how to choose stocks that suit the way we trade.
Why repeat someone else's failure when we know it won't work in the stock market?
We are not going to share the analysis that is already widely known by most investors, such as the traditional technical analysis plotting support or resistance line & indicators. We’ve tried that & is not very effective. It is a piece of knowledge from the textbook, and can’t really apply or reflect the actual market condition. If you are an academic & not planning to trade in the market, traditional technical analysis is what you need to learn. But if you really want to trade in the stock market, we need to know the big boys' next move.
You may follow the link below to find out more about why traditional technical analysis doesn’t apply in real-world: https://youtu.be/hYzLUGGjVto
Whether you are trading for the short or medium term, remember one principle of trading or investing, follow the big boys. We don't mean following rumours or any news, these are usually posted on purpose or have already happened and by the time we react to it, it's too late.
Big boys' intention will always show in the price & volume movements, transaction data & patterns. All of us have access to this data from our trading platforms, but most retail investors don’t know how to interpret this data to follow the big boys.
Once you understand how the big boys work and their trading patterns before each price action, you can maximize your profit potential and minimize your losses by exiting the trade before the big boy lowers the price. There will be no problem finding the next entry and exit for short-term trades.
If you don't have time to move in and out in the short term but still want capital gains. You can look for stocks with big boy accumulations and move in when they're ready to mark up. The whole process from accumulation to peak price can take 3 to 6 months. If you can catch this wave, you will make roughly the same profit as a short-term trade, as in the example below:
From RM 0.80 to RM 1.80++ in 2 months after accumulation.
From RM 0.70++ to RM RM 2.4++ in 3 months after accumulation.
The trading method, whether is long-term, medium-term or short-term, depends on our availability. Choose the one that suits you so you can maximize its potential.
To find out more about how we maximize returns with a capital of RM20,000 and below, watched our past live-streamed on 1 May 2022 via the link below:
Don't miss this video as you will be learning more about how to select the stocks mentioned above.
Give us a LIKE to support our contribution if you find this blog helpful to you. Thank you!
Easy way to learn how big boys accumulate shares: https://bit.ly/roundnsurge
Kelvin's Twitter: https://twitter.com/KelvinYap810
Malaysia's stock market is a unique market, hence it requires a customized trading approach to tackle & swerve. Many existing traders in Malaysia apply a plug-and-play strategy from the overseas stock market, but it is not necessarily the best strategy to trade in KLSE. This is due to the difference in local and overseas stock market regulation and the size of market participants of institutional funds & retail investors.
“True traders react to the market.” is the backbone of our trading method. Our findings and strategies are developed through years of trading experience and observance of the operating style in Malaysia’s stock market.
Trading Account Opening
They are offering an IntraDay trade brokerage rate at 0.05% or RM8 whichever is higher for day trading stocks RM 50,000 & above-transacted volume (buy-sell the same stocks on the same day). Buy & hold at 0.08%or RM8 whichever is higher.
Open a cash account now at the link below :
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For more inquiries contact him by email: firstname.lastname@example.org or 019-5567829
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This blog is for sharing our point of view about the market movement and stocks only. The opinions and information herein are based on available data believed to be reliable and shall not be construed as an offer, invitation or solicitation to buy or sell any securities. Round & Surge and/or its associated persons do not warrant, represent, and/or guarantee the accuracy of any opinions and information herein in any manner whatsoever. No reliance upon any parts thereof by anyone shall give rise to any claim whatsoever against Round & Surge. It is not advice or recommendation to buy or sell any financial instrument. Viewers and readers are responsible for your own trading decision. The author of this blog is not liable for any losses incurred from any investment or trading.