| StockFetcher Forums · General Discussion · Bartune1, question on your position sizing | << 1 2 >>Post Follow-up |
| einok msg #85647 - Ignore einok modified |
1/6/2010 1:22:55 PM Hi Bartune1, I bought the book Short Term Strategies That Work, and in chapter 6 they show the statistics that stops generally hurt a position. I have a question on your comment on 12/6/2009: “ideally, based on my position size I would use $5K as a unit .... up to a max position of $50K following Connors TPS .... but, I have never scaled in that long because the position has always reversed .... remember, you are only entering these positions after they have become significantly oversold/overbought/extended in the first place ....” Are you saying you would be willing to lose the entire position (up to maximum of $50k) if the position went against you? Are you calculating a percentage of your account size that you are willing to lose? Say for instance if a trader had a $50k account and he was comfortable with a 5% loss. That would mean that the trader would be comfortable with a $2500 loss and not set any stops. This 5% loss seems like it would be manageable to me. What do you think is the best percentage to risk on an account on average? Others in the forum, please feel free to respond too. I just know that Bartune1 swing trades reversion to the mean, so that is why I have asked him. Thanks, Erik |
| Kevin_in_GA 4,599 posts msg #85661 - Ignore Kevin_in_GA |
1/6/2010 4:23:56 PM Well you are very unlikely to lose the entire position, unless that stock went to zero. Also, your entry "SHOULD" be a high probability entry for gain - averaging in if it keeps dropping is the risk you take, but all it really does is commit more of your trading capital to that trade, while lowering the overall loss % (but increasing your total dollar loss). Hopefully you hold through the apin and get out near breakeven or at a small profit. |
| DLB7 43 posts msg #85662 - Ignore DLB7 |
1/6/2010 4:35:01 PM Erik, Great questions! Here is a simple way that works with any position size. Multiply the numbers to suit. It seems that everyone agrees that strict money managment is key. Example: $10K Trading Capital DO NOT EVER LOSE MORE THAN 1% OF YOUR TRADING CAPITAL ON ANY ONE TRADE. (never vary this rule) 10K x 1% = $100 MAX LOSS EVER IS $100. Step One: Buy price per share = $9.98 Stop = $9.50 RISK = $0.48 $100 divided by $0.48 = 208 shares to buy. Often your stop will be wider, this forces you to buy fewer shares. Step Two: NEVER ALLOCATE MORE THAN $2K TO ANY ONE TRADE - LESS WOULD BE BETTER (still with a $10K account. Some will say this is too high and should be no more than 2% - you choose) $2000 divided by $9.98 = 200 shares. I will buy 200 shares. If I lose I will only lose $96.00 I have had much practice at losing - this works. Draw up a cheat sheet for this and it takes a few seconds to calculate when trading. There are more complicated methods, this is just my opinion and works for me. HTH, best of luck with your trading. |
| miketranz 956 posts msg #85664 - Ignore miketranz |
1/6/2010 4:39:24 PM On a 50k account,you don't want to risk more than $250 per trade max.I'm speaking from experience.A $2500 hit on an account that size is insane.Let someone else trade with no stops.Don't buy into it.Trust me and I don't care who back tested what,you won't last that long in the market taking advice like that......... |
| BarTune1 441 posts msg #85665 - Ignore BarTune1 modified |
1/6/2010 5:44:21 PM Erik, I am no expert on position sizing, but I have significant funds to work with ..... I will risk up to 10% of my portfolio in a particular position .... but think that 5% is a better mark for the average person .... if you are trading ETFs only - particularly country funds - you could go 10% .... I dont follow the TPS system but will add units to reversion trades depending on the circumstances. Remember thought, alot of this is personal preference based on your risk tolerances .... As for losing an entire position, I have never experienced it. I was looking at my trades this past year and there were approximately 600 round trip trades and the most i lost on any one trade was in the neighbourhood of 15%. And thats not using stops and an exit of a cross of the 5 DMA. You should probably paper trade until you feel comfortable. |
| fortyfour 189 posts msg #85666 - Ignore fortyfour modified |
1/6/2010 5:44:46 PM Easy as pie stops......... volatility based stops so that GOOG will feel similar to STEC 1) Determine rough estimate of dollar loss your willing to take. Expect price shocks occasionally. (gap downs) ie: $100. expected loss. 2) (Divide) $100 / ATRDOLLARS = number shares to buy. 3) Set stop loss at STOPPRICE Look at some charts and see if you 1,2,3,4 * atr . Or atr(1), atr(10) etc.... For example you can buy about 6 shares of GOOG today with a ( 2 * atr(5)) stop of 590.07 |
| einok msg #85678 - Ignore einok modified |
1/6/2010 9:28:33 PM Thanks everyone for the feedback. Bartune1 a couple follow up's for you since you use the Connors' strategies. It sounds like you trade ETF's a lot. If you happen to be trading stocks, obviously there is more volatility and news that could cause it to gap. Questions: Would you exit a trade on news such as analyst upgrade, since the terms of the trade have changed? What would you do if a position hit a 50% or more loss? Would you just stay with it? Are you trading options with reversion to the mean? Do you do short trades under the 200 day MA in this strong bull market, or all long trades above the 200 day MA. I have had success with the rsi(2) and have scaled in using call options. Puts on the other hand have only been marginally successful and in my opinion not worth the risk. Should we just wait for a bear market to have the market trend on our side? Your thoughts? Thanks again for all the help |
| einok msg #85681 - Ignore einok |
1/6/2010 9:47:21 PM DLB7 (and others) You show position sizing and stops for stocks. How would you calculate based on options? I am thinking that you would look at the stock chart Example: Max risk on $10k account is 1% or $100 Say you did allocate $2000 per trade divided by option contract price of $4.00 = you buy 5 contracts. (5 contracts, equivalent to 500 shares, x $4.00 per contract) = $2000 per trade Question is, how would you determine where to set a stop using the option price? |
| BarTune1 441 posts msg #85683 - Ignore BarTune1 modified |
1/6/2010 9:54:01 PM Erik, I trade ETFs, stocks and options and I would recommend playing those in the same order depending upon experience. Options can be extremely tricky and there are a number of ways to play them based on the circumstances. I would tell most investors to stay away from them. I don't exit trades based on news. I try to avoid news events such as earnings or fed announcements. If anything, I have found that a rash of buy or sell recommendations is an event that will cause a stock to become short term overbought or oversold. Again, I have never had a position hit anywhere near a 50% loss. I try to play only liquid high volume, larger cap stocks that trade for more than $20 for the most part. You can chart most of these and draw a 5 DMA through them on Stockcharts. If you plot the RSI2 you will find that these stocks simply don't run that far before they reverse and cross the 5 DMA at which time I would normally exit, on the close. Personally, I short alot of stocks because of past success. Seeing as most stocks are above the 200dma right now, yes I am shorting some of these. According to Connors you should not. It seems alot easier to find stocks that are overbought these days .... but that is misleading, because they are not nearly as good plays as they were back in the first part of last year because they were always reversing. If you want to minimize your risk and make life easy for yourself then yes, I'd buy the pullbacks and try to avoid shorting the market while it is above the 200 dma and while those particualar stocks are above the 200 dma. Short oversold conditions when the market reverses to under the 200 dma. Seeing as 80% of stocks follow the market, you might want to only enter positions when the broad market is oversold or overbought as the case may be. If you follow some of the posts that Kevin and I have made, this can be done simply by following the VIX Divergence and Kevin's Advance Decline oscillator posted under My Favorite Indicator. Cheers |
| DLB7 43 posts msg #85705 - Ignore DLB7 |
1/7/2010 8:53:29 AM Erik, Sorry, I have no experience with options. The risk management / position sizing shown only applies to stocks. |
| StockFetcher Forums · General Discussion · Bartune1, question on your position sizing | << 1 2 >>Post Follow-up |
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