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A trader on the Metastock forum just sent me his position sizing technique.
It follows:
***I should explain that I do, most, of my trading end of day , buy or sell
happens at the opening price, shorting stocks its not my bread, sometimes I
go this way but only when I'm sure to have the time to follow my Real Tick
connection all day long, then I'll buy/sell covered warrants call/put for
intraday trades. My portfolio can change very fast, the average trade being
7/13 days, but some trades are going on by more than one year, few very
good, the rest bloody errors, as we say "hope is the last to die".
1° step: when I've got an entry signal I do open a small trade with,
suppose, 10 shares; this way gives me room to apply a loose stop loss
usually around 5 to 10 %, depending on the behavior of the stock I am
working with) to the first step, to try many signals appearing good and if
wrong to keep the losses small.
2° step: target price its reached, buy other 10, and move the stop loss to
25/50% of the profit coming from 1° step.
3° step: target price reached, buy 30, bring the stop loss at 25/35% of the
profit coming from 1° and 2° step.
At this point I wait for signals of exhaustion / inversion or stop loss
targets, if the chart or the market, oftentimes only my guts, tell me to
reduce then I close the 30 shares position, then close a 10 position and
then close the last position. If closing the 30 position was wrong, well
I'm still on the market with 20 shares but at the first bad signal I'll
close it.
Well that's all, open a small trade on good signal, double it when confirmed
right, more than double when the trend its established, then reduce 60% when
the trend starts to slow down, reduce another 50% if it doesn't adjust well
or it becomes more shaky, close it if it turns real bad. For me, sometimes,
a slow down or a lateral setting of the trend its enough to close the trade
completely, especially when some other stock starts to give good signals.
I have never practiced any position sizing except the fatal newbie error of
averaging down. This is very interesting to me and I'm going to give it a
whirl!
Linda
Swope's Mountain Photography
http://www.swopephoto.com
linda@xxxxxxxxxxxxxx
Climb the mountains & get their glad tidings: Peace will flow into you as
sunshine into flower; the winds will blow their freshness into you & storms
their energy, & cares will drop off you like autumn leaves. John Muir 1838 -
1914
-----Original Message-----
From: TWA7663@xxxxxxx <TWA7663@xxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Date: Thursday, April 15, 1999 9:09 AM
Subject: Position Size
>I would say that 90% of the the discussion on this list about indicators
and
>systems relates to entries. I realize (as do all the vendors) that entries
>create the most interest. However, I have read, and believe, that a
system's
>success is much less dependent upon the entry than the exit and position
>sizing. I have read studies that the best entries "rarely" have greater
than
>55% accuracy and that the best exits can make money with any entries.
>Varying position size can increase returns per $ invested by huge amounts.
>
>I would greatly look forward to discussion on position sizing techniques.
>
>BTW, I want to thank Chuck LeBeau for being a catylst for me to establish
>better exit systems. Most of you know that he has developed exits based on
>average true range. His work prompted me to develop proprietery exits that
>even work better.
>
>I have seen very little discussion for simple "position sizing" techniques
>for the small trader (less than a $Million) for stocks. Most discussion
has
>been about optimal f or a derivation or some other complex method.
>
>Would those that have developed, tested and used a "position sizing"
>technique (other than the complex ones described above) for stocks, please
>share those with the list?
>
>Russ
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