When should I increase my "size"?

[Mecro]

Quote from fan27:

I am trying to determine what I should use for a metric in determining when to increase my share size when trading SPY.

I have been daytrading full time since 3/15/2003. Last month was my first profitable month trading 100 shrs of SPY (+$62.00). So far this month I am at about Breakeven (+$2.00). I have been fairly consistent as of late and my drawdowns are small relative to my share size.

My original plan was to increase to 1000 shares once I make $50 a week for 2 weeks in a row. However, after reading many posts regarding performance, averaging $50 a week on 100 shrs of SPY might be to lofty a goal for a newbie such as myself. I was also considering trading 500 shrs of SPY if I end this month in the black. My logic is that I could be making a little bit of money while still learning. (ie.. 1000 shrs last month would have been more than $620.00 because of cheaper commission. That covers almost half of my living expenses.) I have about 9 more months of savings left so it is not imperative that I immediately start covering my costs with trading.

Thanks in advance,
fan27

From my personal experience.

As soon as you increase size to lets say 500 shares, you are gonna start losing money. First its the problem of partial fills and then it is the fact that you will get worse fills. Easier to getout with 100 than 500.

Do 200 shares, then 300 and get very confident with that. With 200 to 300 share lots you can easily net 150-300 bucks. We have a guy in our office that only trades 200-300 purely because he wants low risk. He used to trade huge positions before.

Both times when I increased size from 100-200 to 500 and then to 1000, I had a losing streak. The risk goes up but you do not adjust you strategy yet because it takes a little time. Do it very gradually.

Make your mistakes with 100 shares not with 1000.

 

[nitro]

The relation of size to the psychology of having to manage it has to do with your knowledge of the expectation that you will get shaken or not out of the trade, and your expected win/loss ratio when you got in the trade and in your given time frame.

The Golden Rule of trading is to prevent a catastrophic loss. But an equally important rule, the other side of the "Golden Rule" is to be aggressive enough so that you allow yourself a loss of a given magnitude twenty times in a row, such that you are still in the trading game without having to worry about things like the PDT rule, or worse, you blow out your account. This rule applies only once you are at least an intermediate trader, not a beginner. I call this "The twenty times rule."

I have done 1000 shares and had a stock go against me a dollar and not even broke a sweat and held only to make a profit. I have had 2 ES and had it go 3/4 against me and I knew I was going to get shelled if I held it for one more second...Once you think this way, the size becomes transparent. No matter what, always defend yourself as much as possible against catastrophe on any given trade, but at the same time be as aggressive as the "twenty times rule" I gave above, once you are ready for it.

nitro