This is my first post on Tim's site. I am excited to be here and to learn. I have been trading for about 5 years and have absolutely NO profits to show for it. I have learned a ton along the way but that learning has yet to translate to profitability so there goes my credibility huh!
The one thing I see as a common thread in many chat rooms is trade size. What is an appropriate trade size? I have a general rule of thumb for this and here it goes.
1. If you end up under your desk in tears, your trade size is too big.
2. If your palms sweat while you are in the trade, your trade size is too big.
How do you get to know the appropriate trade size for yourself?
1. Put on a trade of 1 share. It doesn't really matter what happens does it? It can go very far against you and it is no big deal or it can go up 500% and that is no big deal either.
2. Keep adding shares. Take another trade of 10 shares. Probably not a big deal either way it goes again.
3. Go up to 2% of your account size. Palms sweating yet?
4. Increase trade size until palms sweat, then back off. This is the trade size that you are comfortable with, your sweet spot.
Finding your sweet spot may take some time, but it is hugely important and will keep you objective as you progress forward in your trading career. You do not have to stay at that level. You will become very comfortable there and will be able to increase it over time.
This one rule, if followed correctly has the ability to provide you with a lifetime of trading opportunities. This one rule when broken has the ability to get your account closed faster than any other broken trading rule can. Well, the one that says close losing trades fast is important too, but smaller trade sizes can whether storms even if you don't get out of a losing trade right away. This trade size rule is the stand alone reason why I am not profitable. I have a tendency to get wild west and gunsling large sizes. They have not always worked out to say the least.
More to come later. I have a great idea relative to inventory trading that I am hoping will work very well in the penny stock world.
Thank you!
Bill
Bill: thanks... I've been trading since December. I was trading way too big when I started. Over the past 6 weeks or so I have traded small enough to not freak me out. It allows me to trade the pattern and not the P&L. I have finally began to be consistently profitable. Gotta dig out of a hole now... very slowly right!
is there a percentage that you would say would be a safe position size ? for example 20% of your account or 30,40..etc??
I do not think there is such a thing as a "Safe" position size. In every trade you take, all could be at risk. The answer to the question is how much you are willing to lose in a single trade, that is the safe size. I have been using about 10% of my account on longs and using a stop based upon technical analysis at support. Sometimes I will use 20% depending on where the stop is.
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