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- Thread starter N54_Fan
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Covered short on PPO at $49.11. Profit of $1.14/share. Still in UYG.
As for position sizing I stated above I follow Van Tharps methods with risking ~1% per trade on average. I divide the $ amount (here ~$1000) by the stop loss to get number of shares. Look at one of my first posts in this journal for better details. As for increasing the amount risked per trade I allow myself more and more as my account equity increases and I keep within the 1% rule. However, there are times I may have risked 1% and then be in a profitable trade and I wish to add to my postion on a retracement. I may choose to risk 1.25% because I have a bit of profit to play with. Also I may increase my risk if I have done really well and my acct equity has increased substantially and again I have "profit to play with". I use to risk 0.75% and now I am risking 1% because my acct equity has increased and I have "profit to play with".
I think Van Tharp's books "Supertrader" and "Trade Your Way to Financial Freedom" have helped me tremendously. Those and the books by Alexander Elder are the main reasons I am profitable now.
Regarding position size do you have any limits on the number of stocks you will hold at one time or the maximum dollar amount one position will amount to?
In my case I will not hold over 8 stocks at one time. I will not tie up more than 15% of my account on any one trade. I usually shoot for 12.5% making each trade the same dollar size.
In my case I will not hold over 8 stocks at one time. I will not tie up more than 15% of my account on any one trade. I usually shoot for 12.5% making each trade the same dollar size.
No limit to the number of stocks but usually I hold no more than 6-8 at a time but i have had as many as 10. The number does not matter. It is the TOTAL amount of capital at risk that is important. No limit as to maximum dollar amount. I made one trade in the past that took up 76% of my trading capital in one trade but only risked 0.75% because I had such a tight stop. If my stop loss is REALLY tight then I am able to buy more shares. Do you understand what I mean by that ("...buy more shares with tight stop loss...")?
Ok,...here is where I think you are not using Van Tharps rule correctly. Correct me if I misunderstand you. We do NOT care the amount of capital dollars per trade. We only care the amount of capital dollars AT RISK. It does not make sense to ALLOCATE the same fixed % of your portfolio (12.5% as you say) because each instrument you trade will have varying volatility and will be varying degrees away from your stop loss price. What you want to do is RISK the same fixed % per trade (~1% or so).
So for example you have a stock you want to buy at $100 and you have $100K acct size and you determine your stop is at $99. That is $1 away from purchase price so you could by a MAXIMUM of 1000 shares of the $100 stock and only RISK $1000 (1%). Obviously 1000 * $100 = $100K so you COULD allocate all of your trade capital on this one trade but only RISK 1%. Does that make sense? If it were a $2 stop loss at $98 instead then you could only buy 500 shares ($1000/$2 = 500 shares) and you are STILL only RISKING $1000 but in this case you have ALLOCATED $50K of your trading capital....(and 333 shares with $3 stop loss, etc...). Do you see how your position size diminishes the wider your stop is? This also protects you with more volatile stocks because they move more rapidly and your stop would obviously be farther away than other stocks. That is why I can buy fewer shares of a 2X ETF and STILL make the same amount of money without ALLOCATING the same amount of capital. So my capital is being used more efficiently but I am still RISKING the same amount. Make sense?
That is how Van Tharp describes fixed % RISK of capital. Not 12.5% of your capital among 8 different trades to total $100K. You could have $5k in one trade , $12K in another, $8K in another and so forth but EACH one risks $1000.
I limit my TOTAL risk to 6% at any one time. So if I have a pofitable trade and I move my stop to a profit then I can take on a new trade with 1% risk because I have 0% at risk on the profitable one....I am only playing with the house's money on the profitable trade & NOT my own.
I know this was a long post but I hope you took the time to read and digest this. This is VITAL to trading correctly.
Good Luck.
I use the percent of total capital rule to protect myself against black swan events. Overnight gaps; trading halts; stock dropping so fast that stops are not filled:
I understand the Tharpe Method but donât want to risk all my capital on one trade even if it is only a theoretical risk of 1%.
My position sizing is done first with the Tharpe Formula and secondly by max dollar method. I usually default to the max dollar method:
Using your example: If my stop was placed at $99; instead of buying 1000 shares I would only buy 150. I have only put $150 at risk and protected myself from a catastrophic event.
If I were to place the stop at $90 I would only buy 100 shares and only put $1000 at risk.
I try and find a happy medium.
There are just too many things that I donât have control over for me to put my all my capital at risk on any one trade.
I understand the Tharpe Method but donât want to risk all my capital on one trade even if it is only a theoretical risk of 1%.
My position sizing is done first with the Tharpe Formula and secondly by max dollar method. I usually default to the max dollar method:
Using your example: If my stop was placed at $99; instead of buying 1000 shares I would only buy 150. I have only put $150 at risk and protected myself from a catastrophic event.
If I were to place the stop at $90 I would only buy 100 shares and only put $1000 at risk.
I try and find a happy medium.
There are just too many things that I donât have control over for me to put my all my capital at risk on any one trade.
Another good day. Closed PPO short with a smaller win than expected but that stock clearly had a reversal forming mid day. In fact my win on that was trimmed significantly but still a win. UYG almost reached my first Target of $51.66 or thereabouts. UP $5.47/share since purchase. Still holding until my sell signal.
deaddog,...I understand where you are coming from. You just have to do what makes you feel comfortable and where you can sleep at night.
deaddog,...I understand where you are coming from. You just have to do what makes you feel comfortable and where you can sleep at night.