Mr. SizeMan ?!?

[saschabr]

Hey,

i have realized that many traders out there are only happy when they trade "big sizes -- maximal positions". of course a "big position" is a different thing for all of us, but i mean the traders happily maximizing out 25% margin etc.

WHY THAT ???

of course, commissions are more efficient the larger you trade, and sometimes you may see an opportunity which justifies the large size but it seems rather unreasonable to me if you sit there with shakin' nerves because the stock went 0.10 against you and leaves you in an uncontrollable situation. i say this because i (never??) do not do such things.
my basic rule is: single stock positions not more than 35% of my trading asset, but indices / index futures i am handling differently.

and could it be that the "size problem" is the reason for 90% of new daytraders failing (old myth...)

 

[candletrader]

Originally posted by saschabr
and could it be that the "size problem" is the reason for 90% of new daytraders failing (old myth...)

Well, poor sizing is one of many reasons... other reasons include:
1) failure to trade with the trend
2) failure to run profits
3) failure to cut losses
4) failure to pull the trigger in a timely fashion

And there are many others, I guess. The vast majority of reasons have little to do with trading technique, but have everything to do with the psychology of trading.

 

[cashonly]

Originally posted by saschabr
Hey,

i have realized that many traders out there are only happy when they trade "big sizes -- maximal positions". of course a "big position" is a different thing for all of us, but i mean the traders happily maximizing out 25% margin etc.

WHY THAT ???

It probably depends on the trading style that works best for them. For some traders, they develop a style that works well on just a few stocks and the best way for them to maximize their profit is by doing large size. For example, a scalper who nets (at the end of the day) 5 cents a share needs to trade lots of shares. Scalping for 100 shares just won't make a living, he needs to do at least 1000 and usually in the 3000-7000 range or whatever it is before he himself starts to affect the market.

On the other hand, I know of traders that do very well "going wide". They put on 30-60 positions of 200-500 shares each and ride them all day - no in and out. They're profit per share traded can end up being something more like 50 cents per share.

Now the "scalper" couldn't trade the way the "rider" trades and vice versa, so size is usually a matter of style and style is directly related to what works best for that indifidual trader.

 

[saschabr]

cash -- of course, different trading styles imply different sizes. i addressed the more unreasonable "way" (for me...) like creating a 400% margin position trying to catch a 10min trend and then not being consequent -- maybe because the position size affects psychology too much.

 

[cashonly]

Originally posted by saschabr
-- maybe because the position size affects psychology too much.

Size can definitely affect trader psychology. I've seen traders do excellent with 1000 shares, but then jump to 2000 shares and have a tough time. Usually it's OK if the move up is gradual, it's the jumps that are killers. And for some traders, they hit a mental block on size, but do well we're they are at.

 

[Brandonf]

I heard or read a good analogy on size not that long ago. I cant remember exactly were though. It was something to the effect that if you go into the gym for the first time and try the bench press, you are not going to put up 300lbs with out potentially hurting yourself a lot. The same thing would apply in trading, you have to build into size. It takes some time until you are comfortable with it.

Brandon

 

[rtharp]

Brandonf

Has hit the nail on the head. There is a trader in my office who only trades LU. His minimum order is 5700 and he will go up to 25,000 shares if he can pull it off. His cost is extremely low as he pays less than .0025 per share. He only needs to make a penny to make money and he can usually capture .06-0.08 when he is right.
He tried to trade a few other stocks with his normal size and had his head handed to him.

We have another trader who loves IBM and his minimum to trade is now 5000 shares. He can usually get a point or 2 when he is right while risking .25. He has tried to up his size larger than this but can't.

I weightlift on the side and it is the exact same thing. A trader must build up gradually. I might be able to add 10 lbs more to my bench press each month but it means I have to eat a lot and stay disciplined. If I try to lift an extra 100 lbs I better have a spotter as I won't be able to handle it at all. Unfortunately traders don't have spotters to help them when the weight is too much.

There are ways of handling size. It can be done but takes time to graduate to that level. It can't be done overnight.

Robert Tharp

 

[rtharp]

Originally posted by saschabr
Hey,

...

but it seems rather unreasonable to me if you sit there with shakin' nerves because the stock went 0.10 against you and leaves you in an uncontrollable situation.
..)

This is the difference between the good traders with size and the bad traders. The good ones are comfortable with their size. If you are shaking and nervous than you need to get out of the trade immediately. You are not thinking clearly and won't handle the situation as well as you need to.

Great traders will be able to take on a big position and treat it the same as 100 shares. The losses/gains are just multiplied by the bigger size.

Robert Tharp

 

[saschabr]

rt: ok, this is the next important point: one man is more like a gambler, he can live with gaining $20000 one day and loosing then this next day. others won't cope with this psychologically difficult situation and go for less capital fluctuation (like me). it is a matter of psychology, not the one's capitalization.
and btw: is it a prop firm where u pay 0.0025?

 

[Hitman]

Let's put it in plain terms, you CAN NOT make size without trade size, plain and simple. The ability to handle bigger size with the same poise you would with smaller size, is the ultimate level of trading. I know because my share limit is 3000 and I have never pushed it much above 1000. Until I do, I will never break out my current statistical range.

You don't have to be inconsistent if you trade size either, I know plenty of people who trade regularly 4000 share positions and average less than one down day a week.

And yes 0.25 cent a share is there if your average size is 10K and you scalp that 50 times a day, a lot of firms would accomodate if that is your style. More volume you do, cheaper your commission will be.