Position size in swing trading

[9th Gate]

Use the following spreadsheet calculation.

$20k
Risk = 2.5% or $500 units
Max Position limit = $4000 (Ability to take on 5 positions)

Choose a stop point. Allow room for movement. Too close and you allow no room for movement , too far away then you undersize your position. A start point might be the most recent 10 day High - Low value, etc.

Choose a reduction factor. A reduction factor of 2 cuts your position sizes in half and risk in half, but now allows you to take on 10 positions to allow you to find winners after your initial investment or you could keep to 5 and wait til the 5 stocks generated profits = to your initial risk before adding to the position, its up to you.

Have fun.

 

[Mercury77]

Quote from 9th Gate:

Use the following spreadsheet calculation.

$20k
Risk = 2.5% or $500 units
Max Position limit = $4000 (Ability to take on 5 positions)

Choose a stop point. Allow room for movement. Too close and you allow no room for movement , too far away then you undersize your position. A start point might be the most recent 10 day High - Low value, etc.

Choose a reduction factor. A reduction factor of 2 cuts your position sizes in half and risk in half, but now allows you to take on 10 positions to allow you to find winners after your initial investment or you could keep to 5 and wait til the 5 stocks generated profits = to your initial risk before adding to the position, its up to you.

Have fun.

I downloaded your calculator. Its very easy to to make it work with my own risk parameters.

Maurice

 

[Mercury77]

Quote from TruthTeller:

Don't bother. It is very difficult to overcome the hurdles in options when you are swing trading. I swing trade a very successful system, and have been at it for 4 years. But options are not a good vehicle. A 4-5% move in the underlying in a few days will not generally overcome your spreads and decay, while you would have done nicely simply holding the stock.

You can easily demo this for yourself by logging an option purchase or sale at the time you bought the stock, and watching the option move. You'll get the picture. And it isn't generally a good picture, unless your stock is the 1 in 100 that takes off.

However, it IS extremely important that you hold diversified positions whenever possible. You simply need to allocate a certain percentage of your dollars to each position. Not brain surgery, and there is no pat answer for it. Much depends on where the market is, and what kind of strategy you are trading. If you feel that you are setting up for a number of trades, then take smaller but more positions. It is more of an art than a science. Eventually you'll get a feel for it. But always important to be diversified. With only 20K it will take time to build your equity. But it's great training for when you can build a larger base.

My strategy is for the most part based on trading pullbacks in strong trending stocks in strong trending sectors for example metals & mining and energy on the long side for the past couple of months and for example retail stocks on the short side. I also like trading pullbacks of base breakouts. So I got a lot of nice set ups but I missed a lot of nice set ups because I gave too much weight to some positions and had no money left to trade the other set ups and to be honest I missed the best moves even tough I got them on my "radar" but had no money left to trade them. So I already have put in a time stop so I cant stick to a stock that isnt moving a lot. You are right about that it will take a lot of time to build my equity to make it really worthwile in dollar terms but because i have a job I only look at the % returns of my equity and I am not trying to make a living off it. Would be nice tough but that isnt my main goal.

How do you determine the % of your total equity that you trade per position? Do you look at the overall market , trending or range bound?

 

[TruthTeller]

Quote from Mercury77:


How do you determine the % of your total equity that you trade per position? Do you look at the overall market , trending or range bound?

If you are trading pullbacks, as I do, then the market will often give clues as to what to expect in terms of the number of stocks that may appear on your radar, as you put it. Typically the weaker the market, the greater the overall opportunities that are presented. Those are also usually the best opportunities. Because you're working with limited capital, you'll never come to a perfect solution. There will always be good trades you can't take. Just have to accept that.

You might want to look into single stock futures as a partial solution. Some that are currently available may turn up on your radar, and that will give you some leverage without the drawbacks of options. For a variety of reasons, SSFs don't move perfectly in concert with the underlying, but for swing trading they are close enough. Just be careful you don't trade the SSFs just for the leverage. Be sure they fit your other parameters as well.

Your attitude of having patience in building your account and learning the ropes is a good one.

 

[TruthTeller]

Quote from OptionScreen:

Intersting, isn't option supposed to move as much for
underlying stocks?
so how option traders can make money, beside just benifiting from selling covered calls, leverage?

In my opinion, most retail options traders don't make money.

In regard to this thread, going long calls on stocks that pullback puts you in the position of having to overcome a typically wide bid/ask spread, and fighting the time decay while waiting for your position to payoff. And no, options don't move in a 1-1 relationship with the underlying.

One could always sell puts on pullbacks, but that is an entirely different subject. And for a number of reasons, and based on considerable experience, I would never recommend that approach, especially with limited capital.

 

[Mercury77]

Quote from TruthTeller:

If you are trading pullbacks, as I do, then the market will often give clues as to what to expect in terms of the number of stocks that may appear on your radar, as you put it. Typically the weaker the market, the greater the overall opportunities that are presented. Those are also usually the best opportunities. Because you're working with limited capital, you'll never come to a perfect solution. There will always be good trades you can't take. Just have to accept that.

You might want to look into single stock futures as a partial solution. Some that are currently available may turn up on your radar, and that will give you some leverage without the drawbacks of options. For a variety of reasons, SSFs don't move perfectly in concert with the underlying, but for swing trading they are close enough. Just be careful you don't trade the SSFs just for the leverage. Be sure they fit your other parameters as well.

Your attitude of having patience in building your account and learning the ropes is a good one.

I thought about SSFs . Do you have any experience with them? And if so how are the spreads comparred to the underlying right now? I read some threads here on ET and there were a lot of complaints about the wide spreads but I must say these threads were written 2003 and most of the guys are daytraders on ET. In the Netherlands where I am from we also have SSFs and they are auto quoted by a market maker, good spreads but because of the small number of set ups not what I am looking for (market is to small). About the leverage you are right they have to fit my parameters.
Thanks for the replies.

Maurice

Maurice

 

[TruthTeller]

Quote from Mercury77:

I thought about SSFs . Do you have any experience with them?

Not for the past year. I suggest watching them yourself as a test. They aren't a completely pure play, but they may work for you if the only other alternative is not taking the trade at all.

And as I'm sure you already appreciate, you shouldn't be looking into leverage at all until you've nailed your strategy and feel confident in your success.

 

[Mercury77]

Quote from TruthTeller:

Not for the past year. I suggest watching them yourself as a test. They aren't a completely pure play, but they may work for you if the only other alternative is not taking the trade at all.

And as I'm sure you already appreciate, you shouldn't be looking into leverage at all until you've nailed your strategy and feel confident in your success.

I will put them on my quote screen and will watch them myself. Thanks for your replies.

Maurice