I briefly touched on account size in yesterday’s trades post, pointing out that trading a cheap stock can mean large profits even for a relatively small trading account. Here’s a trade at the other end of the spectrum — CHTR — a stock that was, at the time of this trade, priced well over $300.
At first sight, such a high price might make the stock seem untradeable. But one of the wonderful things about trading stocks is that we can scale our position size according to the price of the stock being traded. Typically I trade at least a thousand shares at a time. Even for me though, and even trading on margin, CHTR was a bit rich. That’s fine. I cut my position size in half, which enabled me to jump in and ride the price rise, catching almost $5 a share. Even with my half-regular-sized position, that meant a profit of $2,350 (before commission). More than two grand profit. On one trade. In well under an hour.
I could have traded even smaller, cutting my position in half again and still made more than a grand off this single trade. The beauty of higher priced stocks is that a modest percentage move in the price makes for a large dollar-value change. Bigger move / smaller position size. It all evens out, or, as was the case here, we come out ahead.
I definitely wouldn’t recommend high priced stocks to anyone getting started because, frankly, we have to have our psychology locked down tight or we aren’t going to be able to hang in there as the price whips around in whole dollar amounts. Besides, there are always plenty of trades on more modestly priced stocks to be had. Like this one on HRB:
Here we are back in twenty-buck territory. Does that mean we’re restricted to smaller profits? Not at all. Trading just 500 shares (which we could do with a sub-$3k account), this trade would have netted $300. My regular 1000 share position size pulled in $600. And if our account can handle it, there was plenty enough volume here to double up and take $1,200 on this trade.
Hopefully these two extremes traded on the same day, more or less at the same time, show that whatever our account size, there are always good profits to be had from the stock market. Every day.