MONEY MANAGEMENT
The Business Of Trading
Breakeven Analysis For Daytrading
by Roberto Chahín
When you're creating a business plan, you've got to make sure you
can break even, or better yet, make a profit. That goes for the business
of daytrading, too.
Serious daytrading is a full-time business;
it is not something that can be taken lightly. It is especially dangerous
to try to daytrade while you are working at another job. Think about it:
You're in between meetings or phone calls, and you're simultaneously trying
to follow a market depth window or a time & sales screen. Your job
will cause you to become distracted and prevent you from focusing on your
trading, which will result in poor performance in both. Trading on an intraday
basis requires your full attention, concentration, and commitment. If you
decide to take up daytrading as a full-time business, it's important to
treat it like any other business.
THE BREAKEVEN POINT
Your first step should be to draft a plan that will delineate your goals,
strategies, and expected results. An important part of any business plan
is the analysis of the breakeven point. In a retail business, the breakeven
point is the value or number of sales needed to cover the overhead expenses
and the cost of goods sold. For such businesses, you must determine the
breakeven point by calculating the gross profit margin per unit (GPM),
which is the difference between the sale price and the cost of each unit.
Then you must take the overhead figure and divide it by the GPM to determine
how many units you would have to sell in order to cover your fixed overhead
costs for a specific period of time. This is not difficult, since retail
businesses know the price and cost of the units they sell. But in the business
of daytrading, calculating the breakeven point is more difficult because
of the probabilistic nature of the markets.
...Continued in the October issue of Technical Analysis of
STOCKS & COMMODITIES
Excerpted from an article originally published in the October 2004
issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2004, Technical Analysis, Inc.
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