A.I.M. Users Bulletin Board

[karw]

Hi Bernie,

Most of the time I also use the 5% for minimum Buy/Sell, but for some stocks I use 10% minimum Buy.



Each time you have a sell the number of shares decreases with a factor 0.05:

S2 = S1(1-0.05)

after 2 sells this gives:

S3 = S2(1-0.05) = S1(1-0.05)^2

These formulas look familiar if you remember compound interest formulas.

So the number of shares after N sells is:

Number of shares = S1(1-0.05)^N



Now we do the same for buying:

Each time you have a buy the number of shares increases with a factor 0.05:

B2 = B1(1+0.05)

after 2 buys this gives:

B3 = B2(1+0.05) = B1(1+0.05)^2

So the number of shares after M buys is:

Number of shares = B1(1+0.05)^M



Now combine the sells and buys, they can happen in any order:

Number of shares = StartNumber(1-0.05)^N*(1+0.05)^M




We now can guess a relation between N and M:

Maybe M = N (1 + 2* Safe + 2*0.05)



Then if we want to increase the number of shares by a factor 100 we get the following equation:

100 = (1-0.05)^N * (1+0.05)^{N*(1+2*Safe+2*0.05)}

We assume Safe is 0.1

We solve this for N and we get roughly 500.

We used 5% as a minimum trade but we can parameterize this as well.

For 1% we get roughly 2500
F02 2% we get roughly 1000
For 10% we get rougly 200

The curve is symmetrical around 2.5%. Above 2.5% the number of trades decreases slowly while below the 2.5% the number of trades increases fast. The curve has the form of a hyperbola.



When you maximize this function(the 100 becomes variable) you get for the best trade size roughly 6%.

This seems to be a good candidate for using as a minimum trade size. In fact I may change my spreadsheets now!



Greetings, Karw