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THE PROFIT AMOUNT IS FIXED

Updated

Unlike other trading methods, in Tactical Trading the cycle profit is fixed. In other words regardless of stock price, or how many trades it requires, when the cycle finishes it will produce the known profit amount.

The known profit is derived by summing the Cycle Numbers multipied by the Shares Per Series multiplied by the Trade Range.

For example:

  • Cycle Numbers: 1,2,3,4
  • Shares Per Series: 100
  • Trade Range: 1.00

To calculate the fixed profit:

  • Sum the series 1,2,3,4: 1 + 2 +3 +4 = 10
  • Multiply the result by the Shares Per Series: 10 X 100 = 1000
  • Multiply that result by the Trade Range: 1000 X 1.00 = 1000

The fixed profit for this combination is $1000

Since the cycle profit dollar amount is dependent only on this formula, the underlying stock price is not a factor.

Whether the stock price is $10 or $100, the profit amount is as calculated. Given the calculated profit amount of $1000, and assuming a 500 share initial buy, the percent profit on a $10 stock is 20% and the percent profit on the $100 stock is 0.2%. Quite a big difference, and leaves you wondering why you would trade the system on an expensive stock for a meager 0.2% return?

The secret is in the Trade Range, the price distance the stock needs to move up or down to trigger an Action. The Trade Range is derived from the Daily Move. The Daily Move is calculated on the annualized standard deviation of stock price. This means that a $10 stock will have a smaller Daily Move than the $100 stock. We can also multiply the Daily Move by some amount to get a reasonable percent profit on the initial investment. This is our Trade Range.

To recalculate the above profit formula we first need to make the Trade Range appropriate for the stock price. Lets assume we want a Trade Range of 5% of the stock price.

  • $10 stock X 5% = .50
  • $100 stock X 5% = 5.00

Sum of the Series is 10 X Shares Per Series of 100 = 1000.

$10 stock profit is then 1000 X .5 = $500
$100 stock profit is then 1000 X 5.00 = $5000

We know that the number of shares held is the sum of the first and last numbers in the series. A series of 1,2,3,4 is 1 + 4 = 5, and this result is multiplied by the Shares Per Series, 100, giving us 500 shares held. We now can calculate the Initial Investment: $10 stock is 500 X 10 = $5000, $100 stock is 500 X 100 = $50,000. Therefore the expected percent profit is:

  • $10 stock profit of $500 on an investment of $5000 = 10%
  • $100 stock profit of $5000 on an investment $50,000 = 10%

As you see the Trade Range is critical to creating a reasonable percent profit on inital investment. The Shares Per Series can be manipulated to increase, or decrease, the initial shares which will also have an impact on expected profit.

And once the expected profit is locked in, the cycle will produce it regardless of price direction, number of actions or how many days it takes to complete the cycle.

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