Money Management - How do you size your positions?

[stink]

I was just thinking about monaye management principles and i am keen to hear how you guys mnage your money?

Do you calculate a % risk of your total trading capitol?

Or do you make the decision at the time of the trade and not set to a specific amount or %?

Do you recalculate your risk position after each trade, weekly or monthly?

I have a set percent that i will be working off when i actually start in the market as i feel this is the most comfortable approach for us noobies.

Regards
Stink

[Ageo]

Stink when trading short term CFD's i have allocated a certain amount of my capitol towards it.

Then of that capitol i dont risk more than 2% on each trade.

That way my max risk is capped and my profits are let loose.

I also scalp trade which basically is small stuff and basically has a stop for a worst case scenario. Again i dont risk more than 5% for this but usually my win/loss ratio is much more higher as im looking at scalping 1 - 2 points per day.

Hope this helps

[stink]

yeah interesting thanks,

Thats what i am looking at as well 2% on each trade, but making sure no more than 6% of my total capitol is at risk at one time. So the only time this would change for me is when i have moved stops up to lock in profits, then i can open another position.

Well thats the theory at the moment, will have to see how i go with it.

Cheers Stink

[Ageo]

Stink try with small trades basically apply the same rule. Even if it means you trade live but make nothing after commission's etc.. it will still teach you how to manage your positions. Great for when you want to increase your capitol

[stink]

yeah i will make a move when i think there is a good position and it meets my criteria for entering a trade.

One question though. How do you go with placing your stops, i mean if you are stopped out of a trade do they usually sell at your stop price or does it vary greatly?

I understand the rule behind stops as being they sell at the next available price.

Regards
Stink

[Ageo]

yeah i will make a move when i think there is a good position and it meets my criteria for entering a trade.

One question though. How do you go with placing your stops, i mean if you are stopped out of a trade do they usually sell at your stop price or does it vary greatly?

I understand the rule behind stops as being they sell at the next available price.

Regards
Stink


Stink with my stops they are Gauranteed. (spelling?)

But stops are for worst case scenario. Which i always place. As for profit takings or even cut my losses a little shorter i manually close the trade.

A manual close is at market for me.

hope this helps.

[stink]

ok i see, i thought for some reason that the stop wasnt a certainty?

Lets say for example i have a trade going along nicely, i check the price at night when i get home and it looks like its heading south and i am comfortable to get out of the trade. If i put in a sell bid for say $10.00 doesnt that mean that when the market opens tomorrow hopefully my shares will sell for $10 and i am out but the next availble sell price might actually be $9.90 for arguments sake?

Am i missing something?

Cheers Stink

[Ageo]

Well depends on the stop and your broker Stink.

If its a gauranteed stop then you will be closed for that price but they normally charge you extra for this. (with CFD's its just added to the spread).

But if its a normal order like you said well you can get screwed as if it opens @ $9.50 then you will sell at $9.50 if its market. But if its a limit order than it will wait for you to hit $10 which can be worse! because if it continues south you will get screwed even harder.

If your trading shares outright with no leverage then i suggest to look for long term trading (Fundamentals).

But i your looking at short term than i suggest some form of leverage like futures of CFDs as they are suited better for this style and give you the tools to take advantage of it.

[stink]

yeah fair enough,

At this stage i have been advised to stay away from CFD's? and just concentrate on trading good shares. I dont know anything about CFD's at all, will be looking to learn though for sure.

Cheers Stink

[Ageo]

yeah fair enough,

At this stage i have been advised to stay away from CFD's? and just concentrate on trading good shares.


Who advised you this?

[stink]

The trainer that i received my intial training from. They run a cfd course that i can do at no cost to me in the future but he recommended at the moment to stay away from cfd's?

Do you think otherwise? If so why.

Cheers Stink

[Ageo]

The trainer that i received my intial training from. They run a cfd course that i can do at no cost to me in the future but he recommended at the moment to stay away from cfd's?

Do you think otherwise? If so why.

Cheers Stink


Well did he explain why to stay away from them?

In detail that is?

[stink]

Basically he said with CFD's and other more advanced trading methods you require leverage for trading and in his opinion using leverage when just starting out can turn out very bad.

From the quick search on CFD's i have done through this forum it seems that is the general opinion.

I am no rush anyway i want to be sure i have a good grasp on the basics of trading before i go looking for other opportunities.

Cheers Stink

[Ageo]

Stink well his advice is basically saying something like this.

Dont borrow money to buy things because you can lose alot.

If you want to trade short term than i suggest you learn a leveraged tool.

And when i mean learn it i mean learn how to minimize your risk.

Cfd's, futures, options etc... are all risky if you dont know how to manage them.

Why is it that some people lose less with derivatives than shares but then make 10x more ?

Like i have said before leverage can be your best friend or worst enemy but how you use it is up to you.

[RichKid]

Stink,

This is just a personal opinion but if you can't make money trading stocks then I doubt it'll be any easier with CFD's or other derivatives. IMHO start with stocks and don't be tempted by greed and fast money- leverage works both ways, why not keep it as simple as possible by trading highly liquid ASX stocks first?

CFD's are in fashion so every man and his dog talks of them but only a few can make money from them consistently. It's better to learn to manage and pyramid a position than to go all out for leverage from the start imho. Also, CFD providers have many tricks up their sleeves, from wide spreads to not filling stop orders properly, at least the major online discount stockbrokers are more reliable.

Just my views, hate to see you get in trouble. Your trainer sounds like a prudent guy to keep you away from CFD's at the start, especially as you're still learning about position sizing and stops. If you want to learn more about stops and other issues involving leverage do a search of ASF for more.

Rich

[MichaelD]

The most profitable (or more importantly least lossy) method of money management is fixed percent loss risk based.

eg
Capital $100,000
You decide you are prepared to risk losing 2% of this capital on any given trade. This is a commonly quoted figure which by the way I believe is too high - I personally risk 0.5% per trade.
Therefore, you are prepared to lose $2,000 on any given trade.

Work out where your initial stop is on a trade, and from there work out how many shares you will buy.

Example:
Share is at $10.
You decide your initial stop is at $9.
The loss you are prepared to accept is $1 per share. Since you are prepared to accept $2,000 loss per trade, you are able to buy 2,000 of these shares.

[It's Snake Pliskin]

Stink well his advice is basically saying something like this.

Dont borrow money to buy things because you can lose alot.

If you want to trade short term than i suggest you learn a leveraged tool.

And when i mean learn it i mean learn how to minimize your risk.

Cfd's, futures, options etc... are all risky if you dont know how to manage them.

Why is it that some people lose less with derivatives than shares but then make 10x more ?

Like i have said before leverage can be your best friend or worst enemy but how you use it is up to you.

...learn how to maximise your risk under risk managment priciples.

[Ageo]

...learn how to maximise your risk under risk managment priciples.

Maximise? lol Pliskin if you wanna mazimise your risk then goto the casino on the pokies!

[tech/a]

The most profitable (or more importantly least lossy) method of money management is fixed percent loss risk based.

eg
Capital $100,000
You decide you are prepared to risk losing 2% of this capital on any given trade. This is a commonly quoted figure which by the way I believe is too high - I personally risk 0.5% per trade.
Therefore, you are prepared to lose $2,000 on any given trade.

Work out where your initial stop is on a trade, and from there work out how many shares you will buy.

Example:
Share is at $10.
You decide your initial stop is at $9.
The loss you are prepared to accept is $1 per share. Since you are prepared to accept $2,000 loss per trade, you are able to buy 2,000 of these shares.


I agree I use the same method.

Its known as Fixed Fractional position sizing.
With a 10 position portfolio dependant on weighting of each position and a 10% of initial purchase price stop that equates to a 1% loss on stop if each position has 10% of your initial capital.

Further I would suggest having a smaller risk in times of uncertainty,this can be adjusted by taking smaller positions (My preference) or a closer stop, or both.
As things confirm they are bullish then increase position size.
I personally like to see things go my way pretty quickly,if they dont then Im happy to get out and go again.
Currently the win rate is very average and so parcel sizing is (For me) around 50% of normal size for short term trades.I'm not buying longterm trades.
If its going my way then I will load up but sell often on opens when buyers fight to get in.

Timing is very important here.

[It's Snake Pliskin]

Maximise? lol Pliskin if you wanna mazimise your risk then goto the casino on the pokies!

well that`s what people do do!

But, a miconstrued comment I made. Maximise your winning moves by loading up on them - pyramiding. Manage risk by having stops and cutting off the losers.....So the paradox is one minimises risk - only in the losers.

Exposure gets profits, not apprehension.

[suhm]

but if you have such tight stop losses if u purchase some stocks which are more volatile i.e. vsl and gtp which can have intraday highs and lows about 5-10% apart on light volume and you would have missed out on a lot of upward movement

[Ageo]

Pliskin,

Now your making sense. But speak english as newbie's dont understand the Jargon!.

Cut your losses and let your profits run baby!! :dance:

As for position sizing, i have over 110k in capital but only allocate 40k towards short term position trading.

So i risk 2% of 40k

Then i leave my other capital for speculation (like BHP) or just plain old scalping to help fund the lifestyle.

But i will never have more than 30% of my "total" capital tighed up as this way i can be flexible in adjusting positions etc..

Enjoy your weekend

[MichaelD]

Further I would suggest having a smaller risk in times of uncertainty,this can be adjusted by taking smaller positions (My preference) or a closer stop, or both.

In volatile times, using wider stops and smaller position sizes is better - less drawdown/more profit. The tighter the stop, the more the positions whipsaw.

[It's Snake Pliskin]

Pliskin,

Now your making sense. But speak english as newbie's dont understand the Jargon!.

English is with a capital "E".

Nice figures. I'm sure that 40K is working well.

[It's Snake Pliskin]

but if you have such tight stop losses if u purchase some stocks which are more volatile i.e. vsl and gtp which can have intraday highs and lows about 5-10% apart on light volume and you would have missed out on a lot of upward movement

If you know your time frame its not an issue.

[stink]

HI Again,

Just wanted to say thanks all for the replies, i see a couple of you recommend smaller parcel sizes in the current environment. I had thought of that myself actually, working out how many shares i can buy based on a 2% risk and then cutting it by a third?

Anyway i am still papertrading at the moment so i will see how things go.

Regards Stink

[swingstar]

Risk is fixed 0.5-1% of total capital (depending on volatility)

Position sizes vary, sometimes up to 10%, but usually around 5%.

[stink]

Risk is fixed 0.5-1% of total capital (depending on volatility)

Position sizes vary, sometimes up to 10%, but usually around 5%.

Sorry to sound thick here mate but can you elaborate for my simple mind :-)

is the above per trade or ?

Cheers

[Sir Burr]

Risk is fixed 0.5-1% of total capital (depending on volatility)
What do you base your "capital" on? Does it included realised or unrealised profits and losses?

Does it matter?

SB

[swingstar]

What do you base your "capital" on? Does it included realised or unrealised profits and losses?

Does it matter?

SB

I base it on realised. I never have much exposure to the market (I feel unsettled by having anymore than 40% on the market at one time), so it's not a huge difference between trades. For someone who trades their whole capital, then it's probably best they base it on unrealised.

[swingstar]

Sorry to sound thick here mate but can you elaborate for my simple mind :-)

is the above per trade or ?

Cheers

For example, say I have $100k.

I only risk .5% on a single trade. So $500 on a single trade.

Say I feel good about a stock that I've traded in the past and 'know' well, I might use $10k on the position, with still only $500 risk. The risk for that trade then is 5%.

If I don't feel as confident of a trade, then I might use $4000. In that case the risk for that trade is still $500, but 12.5% -- as soon as the position value then drops 12.5%, I'm out. I may consider getting out earlier if it's consolidating or outside factors come in to play that could affect it.

Because I trade options, I have to be very cautious of gaps, so I factor that in as well. A gap could reduce my position to nothing. That's why I don't like much exposure :)