How to Calculate the True Cost of Trading
TechniTrader in partnersip with StockCharts.com recently held a virtual training webinar on how to identify Dark Pool activity. An area of Technical Analysis that has not made its way into most stock market books, articles, and information available on the internet is to use Dark Pool Chart Patterns for higher profits. The reason why Dark Pool technical patterns aka footprints are not yet part of the Technical Analysis standard of teaching, is that these are NEW chart patterns.
Dark Pools did not exist in the 1980’s, 1990’s, or early 2000’s decades. These are relatively new trading venues for the giant Buy Side Institutions who demanded obscurity, due to the rise of the High Frequency Trading Firms HFTs in the mid 2000 decade after the switch from fractions to decimals. Basically HFTs morphed out of the Small Order Execution System SOES Bandits, during the rouge Floor Traders era.
Just as an interesting note: Did you know that the Flash Crash of May 2010 was caused by an error in an Institutional order. Instead of using a Time Weighted Average Price TWAP order, the fundamental trader used a Volume Weighted Average Price VWAP order. VWAPs trigger on rising Volume, which then triggers more and more orders. TWAP is the appropriate order for Quiet Rotation™ and Quiet Distribution, as well as Quiet Accumulation.
Consequently retail Day Traders can no longer see the large lot activity on their level 2 screens, as nearly all large lots are transacted nowadays on the hidden venues called Dark Pools. However what can not be hidden, is the easy to identify Dark Pool footprints on the stock charts.
There are many different types of Dark Pool footprints the giant Institutions leave on charts, due to their preferred professional Order Types.
One of the more common footprints happening currently is the “Basing Bottom Formation,” which is a brand NEW type of bottoming formation. To use Dark Pool Chart Patterns for higher profits, the key element for this new bottoming pattern is to identify the Dark Pool Quiet Accumulation before the stock runs up.
However early entry can be problematic if a trader is using Price and Time Indicators, and both Momentum and Price Oscillators. You may get an early crossover, but then the stock moves sideways up and down in a choppy pattern that causes whipsaw exits and losses.
Another problem getting in early is that many Retail Traders wait and wait for signals from Momentum Indicators, which gets them into the stock very late in the run. This means instead of a high profit trade, the Retail Trader takes a meager profit.
One big part of trading that most traders fail to include in profit evaluation, is their true profit.
How to calcualte the true cost of trading is considering more than just the cost of Charting Software, Broker fees and charges, and possibly subscriptions to Newsletters.
To accurately calculate whether a trade is profitable or not, you must also include ALL of the normal business expenses for Trading as a Business. Otherwise you are deluding yourself as to your true profitability in trading.
How to calcualte the true cost of trading includes the following:
1. You MUST pay yourself something for your time. How much could you make an hour, working for a corporation in your field of expertise or your degree? That is the minimum amount you should use as a base for trading expense as an hourly wage.
2. You must also include the average losses. You must take an average of your losses each month and divide it into your trades per month, and subtract that loss from the profits of every profitable trade.
3. Other expenses include your computer, printer, as well as other hardware and depreciation.
4. In addition there is the office space in your home, electricity, internet, phone, and office expenses such as paper, pens, and journals.
5. Finally add up the cost of time attending webinars, the reading articles, and also if you pay a a simulator fee.
Summary
If you did an accurate and thorough calculation of your TRUE trading costs, you would find that taking a .25 cent profit on a 100-1000 share trade is not at all profitable. You are actuality losing money every time you trade.
Most importantly learning how to enter a stock trade earlier based on recognizing a Dark Pool Buy Zone™ is crucial. Use Dark Pool Chart Patterns for higher profits and turn your trading hobby into a career.
Trade Wisely,
Martha Stokes CMT
www.TechniTrader.com
info@technitrader.com
