Advice On Setting Risk and IPO Recommendations
1. How would you decide how much you're going to risk for this position?
- Risk Percentage Rule: Most investors and traders risk 1-2% of their total portfolio per trade. This ensures no single trade causes significant damage.
- Example: If your portfolio is $50,000, risking 2% means you’re willing to lose $1,000 on the Amazon position.
- Position Sizing: Determine your position size based on your stop-loss.
- Example: If Amazon is $230, and you plan to set a stop-loss at $210 (20-point risk), you can buy: Position Size=Risk AmountRisk per Share\text{Position Size} = \frac{\text{Risk Amount}}{\text{Risk per Share}}Position Size=Risk per ShareRisk Amount Position Size=1,00020=50 shares\text{Position Size} = \frac{1,000}{20} = 50 \, \text{shares}Position Size=201,000=50shares
2. At what point, if the price goes down, would you sell for a loss?
- Stop-Loss Placement: Use technical levels to decide stop-loss points:
- Place it just below a key support level (e.g., $220 if $230 is support).
- Or, use a percentage rule, such as 5-10% below your entry.
- Trailing Stops: As the price moves up, you can adjust the stop-loss to lock in gains. For example:
- If Amazon rises to $250, you might move your stop to $240 to protect profits.
3. At what point would you set a stop around breakeven?
- Breakeven Stop-Loss: Move your stop-loss to breakeven when the stock has moved significantly in your favor, such as 10-20% above your entry.
- Example: If Amazon goes from $230 to $250, consider moving your stop to $230 to ensure no loss.
- Risk-Free Trade: Moving the stop to breakeven removes emotional stress, allowing you to stay in the trade longer.
General Rules of Thumb for Stops
Initial Stop-Loss: Set based on either technical support levels or a fixed percentage (e.g., 5-10%).
Trailing Stops: Adjust when the stock moves up 10-20%.
Risk-to-Reward Ratio: Aim for at least a 1:2 ratio, meaning for every $1 you risk, you aim to make $2.
- Example: If your stop is $20 below the entry, target at least $40 in upside.
Other Blue Chips or IPO Recommendations
- Blue Chips: Focus on stocks with strong fundamentals and pricing power:
- Apple ($AAPL): Stable cash flow, strong ecosystem.
- Microsoft ($MSFT): Growth in cloud computing and AI.
- NVIDIA ($NVDA): AI and GPU leader.
- Berkshire Hathaway ($BRK.B): Diversified and low-risk.
- Upcoming IPOs:
- Keep an eye on Stripe and Arm Holdings (ARM) for high-profile IPOs.
- Research their valuations and growth potential carefully, as IPOs can be volatile.