Hello everyone,

 

I wanted to share with you my one main problem which i have when i am trading and that i think it cost me a lot of money....

The problem is related with position sizing and maybe some of you is having a same problem and maybe this blog is going to open his eyes and help him improve his trading. 

First i would like to say that i have approximately 30k USD on my trading account which is a lot for some of you and for others it is nothing... For me this is a huge amount of money and keep in my mind that my monthly sallary is about 830 USD, that means i would need to work 3 years to get 30k USD without spending not even 1 USD.  I am comming from Slovenia, beautiful, small country, where financial standard is much lower than USA or UK or Germany....

So from where do i have this 30k? 

Well, this money is not mine. My personal principal is only 10% (about 3k USD) and the rest is my friends money which i trust the most and vice-versa. They have lend me, or better to say, they have invested their money into me and we have all made a contract so if i make a profit we split it and if i make a loss everyone has lost their part of principal (depends how much they have invested). I have everything calculated and i regularly keep trak in excel. I have done this that i am not under PDT and i have opened my self an account at IB, broker which is recommended by Tim Sykes.

Because i am a very responsible person i am very careful and cowardly when trading. I have signed a contract with my friends where it is clearly saying that they are aware that they can loose all of their money and that this is a very speculative investment so i could trade without any stress and don`t mind about the losses but i just can`t because i want the best for me and the best for my friends.

Now here comes the problem which i have and i am making very often. If some of you is reading my daily watchlists which i am making you have probably find out that many times i predict the stock quite good if not exactly but i trade it very poorly.... Why???  It is because of my position sizing which i guess i bet to big for me at the moment. Even though i have a 30k USD principal and i can easily buy 1000-2000 shares at let say $3.00 (this is still 10-20% of my account) i cannot describe how many emotions i have inside me when i go into a trade with that kind of size and it is almost certain that i am going to fuck up....

One good example is dip buying at which i think i am good because i can spot when stock is dipping and it is due for a rebound... So let`s say i am watching a stock in the morning and i want to buy a weak open. Here comes the weak open, i wait a little to see if bottom is confirmed and i jumped in.... I set my mental stop/loss at certain price (usually LOD) and i am waiting for rebound. Than it takes 2,3,4 or even 10 minutes and stock is still hanging near it`s lows and jumping up and down for 5-10 cents... That kind of price-action makes me nervous and i am starting to think what if stock is going to break down HUGE (stop/losses are going to be taken out) and i won`t be able to cut my loss fast enough and that kind of thinking makes me to cut my loss at let say 3-10 cents lower from where i bought it even though my stop/loss was set at about 15 cents lower, so my stop/loss was actually never reached... After i have cut my loss it only takes a few minutes and stock is starting to rebound. The move i have been waiting for has came and i have already stupidly cut my loss. Not that i have missed my opportunity to profit but i have actually made a loss on a trade i was totally right.....

I have made that loss because of position sizing. I was in to big and i was scared to lost 1,2,3 cents/share more than i have decided i am prepared to lost.... And when i am trading with to much size i am always thinking about that IF the stop/losses are going to be taken out than stock can easily drop 10-15 cents/share and my loss won`t be 50-60 USD but it can be 100+ USD so i decide to take my loss when it is still small (30-40 usd - higher than my mental stop/loss) and after few minutes stock starts spiking back up and i could have easily made 100, 200+ USD, the profit/move which i was waiting for.

That kind of mistakes i make very often and they add up. Same thing is happening when i am buying breakouts. Many times i sell to soon because i get so emotional and i don`t want to loose the profit which i have. Problem here is also position sizing.... Or another example is when the stock breaks out and than pulls back for a second and than really breaks out big. If i am sized in to big it is almost certain that i am going to cut my loss into that small pullback and i am going to waste a great opportunity for profit... Why? Because i was afraid that a pullback will be bigger and stock will drop like i rock and since i was sized in to big my loss could be bigger than i wanted. All of this is just IF, IF, IF, and everything is happening in my head. 

 

I have found out that when i am trading small size 100-300 shares my trading is good and i am profitable. Soon as i incrase my size from 500-1000 shares or more i more often than not fuck up.... But more worse is this -> when i am trading with 100-300 shares and i make a profit, profit is 30-40 bucks... But when i decide i am going to bet bigger and i make a loss, than this loss is 60-80 bucks and that means i am loosing more than i am profiting. And the worst part of this is that when i bet bigger and loose 60-80 bucks i oftenly loose this money in the scenario i have described above -> that means that i go into a trade with specific plan but because i am sized in to big i get emotional and stupidly cut my loss and not sticking to my plan and after i cut my loss stock makes a move i wanted and i lost the opportunity to profit 100, 200 or even 300 bucks because i had bigger size and i could have made a bigger profit......   Does this sound familiar to you guys? Does anyone has same problem? 

Also if you look at my profit chart (i am importing all of my trades by the way) you can see that i am having ups and downs... Whenever i am profitable and chart is showing progress this was because i was trading with small size.... Than i get comfortable and start to think that now i am used to it and i can bet bigger. WROOOONG.... I am probably going to fuck up and i will get back to zero. 

 

So from now on i am going to start trading with smaller sizes and i am ONLY going to bet bigger when i am going to be almost 100% about a certain move and my risk will be very, very, very small. Let`s say 5 cents and nothing more so i am going to be comfortable even though worst case scenario can happend. I am going to trade with small size for longer time and when i am going to feel comfortable i am going to add to my size slowly. I am not just going to jump from trading 100-300 shares up to 1000 shares like i was doing it now. I am going to start trading with 400 shares, than 500 shares etc.....

 

I really am feeling better now because i have written about my problem and i am going to share this with you guys. If there is anyone with the same problem as i have and this blog is going to help him i will be very happy for him. If anyone had the same problem as i am having at the moment i would more than appreciate to share his toughts to me and what he has changed to improve. 

 

Everyone have a great day and great, sunny weekend. Stay safe and see you in the chatroom ;)

 

Matic