Position size in swing trading

M

Mercury77

Say you have a small account of about $20000 that you want to trade with on a short to intermediate term basis (swing trading). My goal is to trade US stocks, no futures or forex. What is the best way to divide this amount so you can trade multiple positions at a time? because putting all the money in one trade is not what I want because if you think you have an edge :) you should trade as many set ups as you can. But I also dont want to trade very small positions because of the cost etc. I hope somebody can give me some good advice.

Maurice
 
The way I used to do it is put everything in 1 position at once, which is very risky. Once small move stop me out.

Now, I would put 20% of the total # of shares I want to get. If it doesn't move as I expected, I get stop out with little to no lost, and I can also have a wider stop. If it goes as I expected, say 1%, I add another 20%. If it continues to move as I expected I added another 20%. Now I have 60% of my position, and I wait for a reaction to come. If it comes, and it hit a near high, I get the other 40%. If there is no reaction, and it just keep going. I just hold on to the 60%.

Hope this help.
 
** Split the 20K into 1K lots.
** Trade $1K lots (ITM options) on your picks
** Risk no more than $500 /per trade
** Try to have minimum 2 weeks time premium on your option positions.
** Hold between 3-7 days.

ozzz
 
Quote from thecalip:

The way I used to do it is put everything in 1 position at once, which is very risky. Once small move stop me out.

Now, I would put 20% of the total # of shares I want to get. If it doesn't move as I expected, I get stop out with little to no lost, and I can also have a wider stop. If it goes as I expected, say 1%, I add another 20%. If it continues to move as I expected I added another 20%. Now I have 60% of my position, and I wait for a reaction to come. If it comes, and it hit a near high, I get the other 40%. If there is no reaction, and it just keep going. I just hold on to the 60%.

Hope this help.
More...

But what do you do with all the set ups you miss because you focus on just that position assuming the stock doesnt hit your stop but also doesnt move really your way?
 
Quote from ozzy:

** Split the 20K into 1K lots.
** Trade $1K lots (ITM options) on your picks
** Risk no more than $500 /per trade
** Try to have minimum 2 weeks time premium on your option positions.
** Hold between 3-7 days.

ozzz
More...

Ozzy do you trade this way? And how about the spreads in options?
 
I don't trade this way anymore. This method is for the directionally inclined. This was similar to my strategy in 2003 when I made significant gains.

P.S I don't do spreads (at least not yet)

ozz

Quote from Mercury77:

Ozzy do you trade this way? And how about the spreads in options?
More...
 
Quote from ozzy:

I don't trade this way anymore. This method is for the directionally inclined. This was similar to my strategy in 2003 when I made significant gains.

P.S I don't do spreads (at least not yet)

ozz
More...

I think you traded this way in the major bull market of the late 90s and/or the major bear market but with the current conditions and smaller moves I think the spreads in options are most of the time to big to make money on a 1,5 to 2,5 dollar move in the underlying but I will definitely look at it.
 
Quote from Mercury77:

I think you traded this way in the major bull market of the late 90s and/or the major bear market but with the current conditions and smaller moves I think the spreads in options are most of the time to big to make money on a 1,5 to 2,5 dollar move in the underlying but I will definitely look at it.
More...


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.
 
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.
More...

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?
 
If you have margin that gives you 40K buying power. Keep moves within a 5 day period. Don't hold through weekend. Look at calendar or IBD for two stocks under $20 that should move at least $1.

Once in, if they don't move, sell them and go to next pick. Schwab commission only $10. Use very tight stops. Slow movers with good volume. Probably NYSE. Stay in strongest sector. Oil service looking good. Gas pipelines etc etc.

Hell, practice on MFST, INTC, watch 10 day chart.

Think before you shoot. You are out hunting with only two bullets in gun. Need to be sure you kill something as you are hungary, but not stupid.

Good luck

SteveD
 
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