The Art of #POSITION #SIZING #POSITION #SIZING made more ridiculously easier to understand. Position sizing: How to manipulate the size you are risking to keep you longer in the game. The price always tend to go to the direction of the fundamentals in the long term. Price direction is more chaotic within days, hours, minutes and seconds. One gets cash rich on short term trading such as day trading by the minutes, range trading by the minute to hours, swing trading by the hours to day/weeks. While one gets truly wealthy on position trading with gains growing beginning in weeks to years. If gaining and losing in the stock are the only two probabilities and irregardless of the fundamentals and technical analysis the price may go either way, then you might want to divide your bet in 20 or 10 smaller chunks...that is roughly 5% to 10% of your portfolio, respectively. Of course you may assign a different set of numbers according to your taste. However, in case you find yourself at the start or middle of what looks like an uptrend. Then you want to put a big chunk early to rake in more benefit. In a sample 100% portfolio, you may want to place in 60 then 20 then the last 20...in that order. If you place 20 before the next 20 before the last 60, then the huge part of your investment placed late will not grow much profit compared when you placed it earlier at a much lower price. So for bullish stocks, make sure the huge chunks are placed early and lower. In case you do not know if a stock is bullish or bearish (in an overall bull market) and you want to test it, you might want to deploy the 50-30-20 by placing the middle value which is 30 initially. If the price action forms a trend then place 50... then later on, the remaining 20. However... when the price falls after the initial 30, then you may want to place 50 (may further subdivide it to 25-25 or 30-20) so that you may place the last 20 when the price reverses and shoots up. So bigger at the base. Reserve some as contingency if the price pulls back. Going all in at once is suicidal and risky. If you are risk intolerant, use 5% each step of the way. If you are somewhere in between, use 5-20-50-20-5... that is risk a small portion when you are testing an entry, drop the payload once comfortable with the uptrend but again use a small portion when you feel toppish. If you are aggressive, use 90 then 10 and wait for the trend to end. Many other recommended sets include: 40-30-30 50-30-20 60-20-20 70-30 50-25-5-5-5-5-5 40-20-5-5-5-5-5-5-5-5 80-20 50-50 You plan and make what suits you or what best fits your risk appetite. Note: Position sizing is under VOLUME - a very important word in investing. If you want to read more easy to understand concepts, visit us also at Eloy Derivatives on Facebook. At Eloys, we are all newbies - we help each other ..like the blind guiding the blind LOL.
Posted on: Mon, 30 Jun 2014 08:47:11 +0000
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