Position Sizing

N

Nexen

When I trade I like to begin very small and let the trade evolution confirm that the entry appears to be a sound one, as I use a loose stop.

Then as I obtain confirmation from the market, I feel more confident about my trade and add to my initial position on lower size. This way, when I'm dead wrong, I get stopped out on small size. The more confirmations I obtain from the charts, then the more solid my direction would seem.

The one thing I'm not certain, is if I should use individual stops on the adds and risk noise taking out my adds or/and some of the adds or using one stop for the whole position.

I like to let my winners run, therefore I prefer this approach.

I prefer individual stops to trailing that way if only noise takes me out, it took a chunk and not just killed all the positions in a perfectly good trade.

Could use some guidance in this from the more experienced traders.

Thank you for reading.
 
I started using a new trading platform about a month ago and have been trading very small size while getting used to it (made a few mistakes and was glad they were 200-share mistakes instead of 1000-share mistakes).

With small size I sometimes found myself entering trades prior to an ideal setup and using much wider stops. The other day I asked myself, "If this was a 1000-share trade instead of a 200-share trade, would I put in a 1.00 stop?" and the answer was "Hell, no!"

I often hear that many traders do great for months trading small size, then start losing money when they size up, and I think maybe trading small size makes them too loose with stops and prone to hold losing trades longer than is prudent. Then when size increases and losses suddenly look much larger, they feel they can't take a loss that big, they have to wait for it to "come back" or worse, average a losing position.

I'm now placing stops at invalidation points no matter what the position size is.
 
Quote from Nexen:

... The one thing I'm not certain, is if I should use individual stops on the adds and risk noise taking out my adds or/and some of the adds or using one stop for the whole position...

I prefer individual stops to trailing that way if only noise takes me out, it took a chunk and not just killed all the positions in a perfectly good trade...
More...

Look at it this way: while you're positioning yourself with multiple entries for the same setup, consider each add like an indidual trade. For each of them you should have a positive expectancy and obviously a stop loss that makes sense. So for each of these adds, the question is where exactly does the market prove you're wrong and you should be out? Obviously not in the noise. See where the stop should be? where the first one is.

If you're not confortable having all the entries with the same inital "loose" stop (the one that gives enough wiggle), then your trading size is not appropriate.
 
Quote from NoDoji:

I started using a new trading platform about a month ago and have been trading very small size while getting used to it (made a few mistakes and was glad they were 200-share mistakes instead of 1000-share mistakes).

With small size I sometimes found myself entering trades prior to an ideal setup and using much wider stops. The other day I asked myself, "If this was a 1000-share trade instead of a 200-share trade, would I put in a 1.00 stop?" and the answer was "Hell, no!"

I often hear that many traders do great for months trading small size, then start losing money when they size up, and I think maybe trading small size makes them too loose with stops and prone to hold losing trades longer than is prudent. Then when size increases and losses suddenly look much larger, they feel they can't take a loss that big, they have to wait for it to "come back" or worse, average a losing position.

I'm now placing stops at invalidation points no matter what the position size is.
More...

Absolutely agree with you, we tend to be careless the smaller the size, when it should not be like that.

Thanks for your comments.
 
Quote from lurefo:

Look at it this way: while you're positioning yourself with multiple entries for the same setup, consider each add like an indidual trade. For each of them you should have a positive expectancy and obviously a stop loss that makes sense. So for each of these adds, the question is where exactly does the market prove you're wrong and you should be out? Obviously not in the noise. See where the stop should be? where the first one is.

If you're not confortable having all the entries with the same inital "loose" stop (the one that gives enough wiggle), then your trading size is not appropriate.
More...

Thank you for your comments.

Let's see if I hear you loud and clear.

The problem I see with using one stop for the initial entry plus its adds is that the adds size must be very very small in comparison to the initial entry size to make up for its unusual stop width.

Let me explain:

If I buy 500 shares of SPY at 90.00 using a stop of 89.80, and I add at 91.00, using the very same stop of 89.90 on the add, the size of the add must be miniscule in comparison to the initial 500 shares to make up for the unusual stop; and so forth for subsequent adds.

Is this what you are suggesting ? Just want to make sure I read you correctly.

Thanks again for the discussion.
 
Exactly, you must have a reason to get in the market again at 91 ; and a price that goes with it, beyond which that reason to be in again is invalidated, aka a stop loss.
Now if that second SL is set let say at 90.90 while being placed outside of what you're seing as noise, then it makes sense.
On the other side if you put that 2nd SL at 90.90 because you put on a 1000 shares add and that's all the pain you're willing to take, risking it to be shaken out by noise, then this is wrong...

Bottom line, a stop loss has to be calculated on price action, not on a set dollar amount that you're willing to risk.

Next step, learning how to close a losing trade before it hits your SL. One of the skills that differentiate good traders from okay traders.
 
Quote from lurefo:



Next step, learning how to close a losing trade before it hits your SL. One of the skills that differentiate good traders from okay traders.
More...

This is an area I constantly struggle. I tend not to change my stop because retraces then take me out, and I only want reversals against me to do so.
 
It comes with time. As you know your market and your setup in and out, you start to recognize that some moves are not noise or retracement but instead momentum that will likely take out your SL.

Sometimes it just comes out of the blue and hit your SL. And that's ok, that's what it's there for. A safety net, not an exit strategy.
 
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