:: Profit & Loss

Profit

The profit on a long stock trade is unlimited.

Loss

The loss on a long stock trade is limited to the price paid for the shares.

Break Even

The break even price is cost of the shares plus brokerage (assuming no dividend or margin interest).

Long Stock

An advisory service would usually recommend buying a particular stock when they expected the price of that stock to go up. In other words, they would be bullish on the stock, meaning they felt there was some reason, either fundamental or technical, for the price to rise in the short term.

The example we're going to use has Sun Microsystems trading at $5.75 with an expectation that they're going to beat their earnings forecast, due in about 3 weeks. This should lead to a short term gain in the company's share price that the service is looking to take advantage of.

:: Trading Condition

Stock	SUNW
Price	$5.75
Outlook	Near term bullish

:: Alert Example

Action	Buy 1000 Shares
Limit	$5.80
Stop	$5.70

:: Profit & Loss Scenario

The profit or loss on a share transaction is easy enough to calculate - either the price of the share went up or it didn't. In this case, the first price point you will be looking for is the breakeven point of the transaction, which is the cost of the shares plus brokerage for both buying and selling. On 1,000 shares you would normally expect to about $0.01 a share or $10 per leg, making $20 for the round trip. On 1,000 shares, this translates into a cost per share of $0.02, so your breakeven is $5.77.

Once pass this point, the service will be looking for an exit price. On average, the advisory services we track return about 5% per trade. In this case, that would mean a price about $6.00. At the same time, they are minimizing their risk on the trade by keeping a very tight stop loss of $0.05 or about 1%.