Maximum position size for a single stock based on liquidity

helpme_please · Jan 3, 2021

It is risky to put in an excessively large position size in a single stock which has limited liquidity.

I would like to ask the elite traders here are there any rule of thumb that you use when deciding on the maximum position size that you put into a stock based on its liquidity?

This is not an easy number to optimise. Too small means lower returns when one deserves more. Too large means losses or even ruin. Hope to hear from the experts here.

tonyf · Jan 3, 2021

helpme_please said:
It is risky to put in an excessively large position size in a single stock which has limited liquidity.

I would like to ask the elite traders here are there any rule of thumb that you use when deciding on the maximum position size that you put into a stock based on its liquidity?

This is not an easy number to optimise. Too small means lower returns when one deserves more. Too large means losses or even ruin. Hope to hear from the experts here.

Sizing for me is a function of conviction level and not risk.
Controversial, but that's how I roll.

Scataphagos · Jan 3, 2021

helpme_please said:
It is risky to put in an excessively large position size in a single stock which has limited liquidity.

I would like to ask the elite traders here are there any rule of thumb that you use when deciding on the maximum position size that you put into a stock based on its liquidity?

This is not an easy number to optimise. Too small means lower returns when one deserves more. Too large means losses or even ruin. Hope to hear from the experts here.

Some would say, "2% of recent average daily handle" (Volume x share price)

.5% of the handle would be more conservative

newwurldmn · Jan 3, 2021

helpme_please said:
It is risky to put in an excessively large position size in a single stock which has limited liquidity.

I would like to ask the elite traders here are there any rule of thumb that you use when deciding on the maximum position size that you put into a stock based on its liquidity?

This is not an easy number to optimise. Too small means lower returns when one deserves more. Too large means losses or even ruin. Hope to hear from the experts here.

depends on your holding period and intent as that will determine how fast you have to get out.

apo99 · Jan 3, 2021

I trade a lot of iliquid equities on the tsx, maybe 20-30% of the daily volume is what i make up

helpme_please · Jan 3, 2021

apo99 said:
I trade a lot of iliquid equities on the tsx, maybe 20-30% of the daily volume is what i make up

What were the problems you encountered when trading significant percentage of daily volume?

Did you have problems exiting your trades in the illiquid equities?

apo99 · Jan 3, 2021

helpme_please said:
What were the problems you encountered when trading significant percentage of daily volume?

Did you have problems exiting your trades in the illiquid equities?

might take 1-2 days to get out, lots of partial fills, works in your favor too when its going your way tho

.sigma · Jan 4, 2021

apo99 said:
I trade a lot of iliquid equities on the tsx, maybe 20-30% of the daily volume is what i make up

Woah? What kind of weight are you pushing?

apo99 · Jan 4, 2021

.sigma said:
Woah? What kind of weight are you pushing?

Less than you think,

i probably make up 1.5% of the trading volume on the TSX venture. Just because of how small it is

chrisbamtrader123 · Feb 4, 2021

Position sizing is so critical mathematically to ultimate success from what I've discovered. More so than you instinctively think. There are lots of formula's out there...but which one is the best...