Cant remember who all the people are who were commenting on this thread and actually had good positive valuable responses. As OP I thank all of you did. I have read all of Buruch, Wykoff, Livermore, O Niel, Minervini, Darvas... and at this point am just having a hard time deciding which methodolgy to follow. They obvs are different from each other varying either slightly or a lot. I have a smaller account and find myself in like 8 stocks right now. I am doing a good job of chalking up on my SL quickly or just cutting the position altogether like Zanger would do which is slightly differnt to KK who just has a tight stop period. Im starting to wonder if I dont just consolidate my 8 stocks (anet, arm, imgn, mdb, mstr, skwd, srrk mmyt for sake of continuity) into the best movers and start getting more into the faster moving shitstocks that KK mentioned in the stream last week. I have so many stocks because I cant decide which ones I think are strongest and which to get rid of.
How do famous swing traders like Dan Zanger size up so fast?
- Thread starter excrypto
- Start date
- Also am I reading this correctly?: "If you want to make big returns, then you absolutely must concentrate your capital in a strongly-trending stock, and position sizes of 1 to 2 percent of one’s total portfolio equity are, to put it bluntly, quite wimpy from an O’Neil perspective. The O’Neil method of pyramiding into strongly acting positions while weeding out weaker ones generally gets an investor concentrated in the right stocks during a bull market cycle. At times, your authors have been fully invested in as few as two stocks, using full, 200 percent margin, so that each position represents 100 percent of the account’s gross equity."
(from Morales/Kackers book: Trade like an O'Neil Desciple) Question being: are they saying that if I have a $10,000 account that I am literally risking as much as I can and allot $10,000 buying power on one stock and $10,000 on a second stock? Holy pucker factor. Or am I understanding this wrong?
IMO much of these methods are rather outdated. You can gain general knowledge but specifics might not make sense anymore.
You should look up and try to understand kelly like HolyGralSeeker mentioned. Even that gets confusing though between discrete and continuous kelly.
I think 1-2% is popular because that is what the discrete kelly fraction looks like for a stream of bets that barely has an edge and the average trader is going to have a small edge at best. Betting more would just make the system worse. It is also a size that keeps a losing system trading longer.
On the other hand, continuous kelly for buying and holding something like NVDA the past year is absolutely huge. There are even periods with QQQ that continuous kelly is over 100%. Of course, we don't know this until after the fact. For trading systems I would suspect we haven't figured out how to use kelly properly yet because it is really discrete streams of highly correlated, varying continuous kelly bets.
I knew someone that took a small account to a few million during the dot com boom and then before the financial crisis. They were a highly optimistic person in general and would basically go in huge on calls before AAPL earnings in 2005 for instance. Their edge was basically being both a degenerate gambler and highly optimistic as the bull market climbed a wall of worry. Of course, they gave a ton back during the financial crisis and I lost touch with them.
I am a huge Jesse Livermore fan but he was also obviously a degenerate gambler. So much so that even after making 100 million in the crash he killed himself a decade later because he couldn't trade the great depression the same way and thought himself a failure.
10k to 40 million in a few years is not much different than asking how the powerball lottery winner made their billion dollars IMO. The marginal utility of a dollar would cause a non-degenerate gambler to scale back well before anything close to 40 million and at the same time the non-degenerate is not going to risk enough to even get to a million in 2 years from 10k.
If you only have 10k, once you even have a 100k a normal person is going to ensure they never go back to only having 10k again. Once you have a million you aren't going back to a 100k but to get to 40 million in a short time you would need to have to risk going back to $10k from a million. That is something only a total degenerate gambler would risk.
You should look up and try to understand kelly like HolyGralSeeker mentioned. Even that gets confusing though between discrete and continuous kelly.
I think 1-2% is popular because that is what the discrete kelly fraction looks like for a stream of bets that barely has an edge and the average trader is going to have a small edge at best. Betting more would just make the system worse. It is also a size that keeps a losing system trading longer.
On the other hand, continuous kelly for buying and holding something like NVDA the past year is absolutely huge. There are even periods with QQQ that continuous kelly is over 100%. Of course, we don't know this until after the fact. For trading systems I would suspect we haven't figured out how to use kelly properly yet because it is really discrete streams of highly correlated, varying continuous kelly bets.
I knew someone that took a small account to a few million during the dot com boom and then before the financial crisis. They were a highly optimistic person in general and would basically go in huge on calls before AAPL earnings in 2005 for instance. Their edge was basically being both a degenerate gambler and highly optimistic as the bull market climbed a wall of worry. Of course, they gave a ton back during the financial crisis and I lost touch with them.
I am a huge Jesse Livermore fan but he was also obviously a degenerate gambler. So much so that even after making 100 million in the crash he killed himself a decade later because he couldn't trade the great depression the same way and thought himself a failure.
10k to 40 million in a few years is not much different than asking how the powerball lottery winner made their billion dollars IMO. The marginal utility of a dollar would cause a non-degenerate gambler to scale back well before anything close to 40 million and at the same time the non-degenerate is not going to risk enough to even get to a million in 2 years from 10k.
If you only have 10k, once you even have a 100k a normal person is going to ensure they never go back to only having 10k again. Once you have a million you aren't going back to a 100k but to get to 40 million in a short time you would need to have to risk going back to $10k from a million. That is something only a total degenerate gambler would risk.
I think you are 100% right! In fact, he himself has strongly implied that: He has said that stocks set up for good or even great swings only once or twice a year for the most part. The rest of the time stocks are ranging or in a bear market and KK is enjoying life. He decided there is no reason to be tied to the screen everyday all day. My understanding is that he runs his scans after the close each day, scrolls through the charts on his watchlist, and he until he starts seeing breakout and set ups among stocks with either strong sales, a strong story, or a strong sector theme, that is the extent of his market engagement.
I can't answer for those two authors. However, O'Neil, and other well-known successful traders, e.g. Loeb, Darvas, Livermore, and Wyckoff, all advised against the idea of "portfolio diversification."
I don't know that O'Neil would have said you should go full margin and split your entire buying power into only two stocks. But I would think that there were times when he found himself in just that position.
When Darvas started after his last devastating loss before he developed his Method, he was left with around $27,000, and he went pyramided on a scale up into the stock of Texas Gulf Producing.
Later, as his capital grew, he would often start positions in four companies, and then trim the weakest two, putting that newly free capital into the two strongest performers.
Position size is not near the top of my list of things to worry about when entering a trade. I've seen Kris with as many as 15 stocks in his portfolio and as few as 1 or 2. He is obviously mindful of his buying power but doesn't stress about it. I have seen him max out his BP on more than one occasion.
What is on top of your list?
Which direction the damn price is gonna go next.
I do believe position sizing especially with your total bank roll balance is extremely important in this game if youre trying size up quickly. There was a great video Lance Breitstein put out a while back about asymmetric risk on stock and setup you think is A++. I wish I could find it, not sure if it was one from the SMB channel, chat with traders, or his own YT page. But he goes absolutely ham on the setups he believes in.
That's fine just dont get hung up on/worry excessively about the wrong things.