Originally posted by daniel_m
1000-5000 share positions???? On 5-10 stocks???? Man, that must be a decent sized account you're holding there...
Given that trying to get "5-10" points with anything less than a 1 point stop would be VERY dificult, it means you are risking AT LEAST $1000-5000 per trade, and having 5-10 positions on at one time would mean you have $5000-$50,000 at risk any one time. Needless to say, you'd better not be net long or short otherwise one big move against you could easily wipe you out.
(And mind you this is with a ONE point stop, and if you're gonna be holding out for winners 5-10 times bigger than your initial one point risk you can expect to lose that one point quite often. Question, what does this mean for YOUR account? That's for you to answer.)
Trade-sizing is an absolutely fundamental part of trading. Why anybody would trade without understanding the implications of it are really beyond me.
You can hold for as long as you like, and you can trade as big as you like, but YOU HAD BETTER UNDERSTAND THE RISK.
PS - I apologize for the tone of this post. I always aim to have something constructive to say and not "put anyone down", but there are times I feel strongly enough about something that I just gotta say it. When I saw you ask, "you are saying one can have a longer time fram but not larger size?", alarm bells began ringing left, right and centre. I really think a review of the fundamentals is in order here- and position size really is one of the fundamentals. Get that right, combine it with a style that wins more than it loses (per trade) and only THEN begin considering making 6 or 7 figures per annum.
Daniel
Daniel,
I didn't say I had an account that big! I was hoping to find a prop firm that allows that style of trading, because it seems like most are rather tight on these matters.
You sound rather condescending even though you admit not to be! I do understand RISK!!! In fact, when I was on the institutional side we used rather sophisticated statistical risk models like BARRA US E3 with 56 risk factors and various nonlinear optimization techniques to tilt an entire portfolio with hundreds of stocks to the exact risk profile we want- either neutral industry/sector bets, style bets, liquidity, and hundreds of other constraints.
This 5-10 stocks with 1000-5000shares position is almost a joke.
But this is short-term trading so the perspective is obviously different. Institutional money managers think in percentage NOT dollars. So, a $1Billion fund would try to assume a 1% position in a particular stock and that would be like $10M position. And assume theoretically the worst possible scenario and the stock goes to 0 overnite(obviously cutting losses would have kicked in way before that. haha), and the $10M goes into thin air - it would still only be a SMALL loss of 1% for the ENTIRE portfolio! One can recover from a 1% loss easily. Now, that's the right concept of POSITION SIZING. So, for a $1B fund, each day our fund might fluctuate 1-2% and that's like a $10-$20M swing DAILY and we don't even blink an eye because we think in %% not dollars. And we make relatively small sleepable-at-night bets of only 1-2% per stock at most, which is very small but right size (even though that translates to $10M bet per stock).
So, in that sense the individual/retail/prop traders are RISKING way way MORE than the institutions for their size on a relative scale right?? I know Don has written previously about how some traders at his firm can turn a $25K deposit into a $5K/weekly that's like a 20% return a week!!! That's incredible leverage in PROPORTIONS to the meager $25K acct!
Since in daytrading, a 1pt stop seems like a gap bigger than the Grand Canyon, I guess the style of trading I propose(which is quite reasonable and rather "small" even) - a portfolio of
5-10stocks with 1000-5000shares would seem rather difficult to implement in a prop trading environment.
So, please don't say I don't understand risk or position sizing.
trader99
