Estimated Duration: 1 Day

Notes: This lesson will teach you how to define you assets.

Defining your Trading Assets.

Here are some steps to follow as you begin to define your assets:

Determine if you want to day trade, swing trade, invest in longer term trades, or a combination of them all.

Open separate accounts for each type of trading style (margin accounts).

Fund each account.

Determine the number of shares you will buy with every trade

Start trading.

Day Trading and Swing Trading

For Day Trading and Swing Trading, the following guide can be used:

In order to trade 1000 shares per trade you need to fund your account with $200,000 .

In order to trade 500 shares per trade you need to fund your account with $100,000.

Rationale:

Our system requires you to have available cash to trade 4 stocks for Swing Trading and/or Day Trading at any given time. We will not require you to enter more than 4 positions at any given time. This means that your Day Trading account needs enough cash to trade 4 stocks at the same time. AND your swing trading account needs enough cash to trade 4 stocks at the same time. They are separate and they cannot be combined.

Our system requires you to trade with the same number of shares for every trade, no matter what the share price is of the stocks that you choose to trade. Sometimes we will be trading relatively expensive stocks, sometimes relatively cheap stocks. In any case we will trade the same number of shares each time. To make sure that we don't over-extend our cash position, we do 2 things: 1. We estimate the average share price of the stocks we trade. 2. We open margin accounts in case we go over our available cash slightly. The average price of the stocks that we follow in the Focus List is approximately $50.

If we have $200,000 in our Day Trading account, and $100,000 in our Swing Trading Account, We would use the number of shares as shown in the examples below:

If we had a Day Trading Account with $200,000 in it we would divide $200,000 by 4 to get the average cash available per trade: $200,000/4 = $50,000. If the stocks that we follow are $50 on average, then we would divide the average cash available per trade by $50: $50,000/$50 = 1000 shares. Every time we make a Day Trade we should use 1000 shares to trade with. We should never stray from this number unless we adjust it in our quarterly review. We should review this account once a quarter to determine how many shares we should trade with every time we make a trade. If our account grows, we should adjust that number upwards, for example.

If we had a Swing Trading Account with $100,000 in it we would divide $100,000 by 4 to get the average cash available per trade: $100,000/4 = $25,000. If the stocks that we follow are $50 on average, then we would divide the average cash available per trade by $50: $25,000/$50 = 500 shares. Every time we make a Swing Trade we should use 500 shares to trade with. We should never stray from this number unless we adjust it in our quarterly review. We should review this account once a quarter to determine how many shares we should trade with every time we make a trade. If our account grows, we should adjust that number upwards, for example.

Quiz:

If you have $170,000 in a swing trading account how many shares would you trade with per trade?

Scroll down for the answer and explanation.

Long Term Trading

Eventually your longer term trading account will be your biggest account. But it may start out with a $0.00 balance. Every year when you conduct your annual review though, you will re-allocate your assets, and some will be placed into your Longer Term Trading account. The amounts are up to you and your financial advisors.

This money will not likely be placed into trades anytime soon after your allocation unless there is a longer term trading signal in the markets. For the most part, these signals come a few times a year only. Once placed though, we should expect to hold longer term trades for quite a while (> 1 year). The number of shares that you use, and your portfolio allocation for this account, is something that you will need to discuss with your financial advisors as well.

Answer: 850 shares.

Explanation:

$170,000/4 = $42,500

$42,500/$50 = 850