Trading Plan - Position Sizing - Aussie Stock Forums

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  1. #1

    Default Trading Plan - Position Sizing

    Can someone look over my thinking here, assuming the following:
    I have $10,000 trading funds.
    I will use a 2% position size (net), approx. 2.5% (gross) allowing for slippage and transaction costs.
    I will limit open positions to 3 at a time and have a maximum draw-down of, say, $4,000.
    I will be disciplined with stops.
    I reckon if I hit a loss of $2,000 (net) i.e. 10 positions gone wrong, then I must not be cut out for this game.
    Is that a fair assumption? Put another way, how do you know when to throw in the towel?

  2. #2

    Default Re: Trading Plan - Position Sizing

    You have a problem with small starting capital-----not impossible just problematic as your parcel size will be limited and your brokerage and slippage will come into play--particularly if your going to trade short term discretionary.

    3 X $3300 trades are a minimum and would need to be from a universe of stocks where price is under $3.So as to get bang for buck.

    You could use a 3-3.5% risk on capital to help with position sizing.

    You are presuming losses will come all in a row.
    This is not likely more so there will be some winners and some losers.
    You must understand how tou determine positive expectancy and be able to evaluate your expectancy on each trade.

    10 losing trades doesnt mean failure even if they are one after the other.
    My worst streak was 23.In that time I had 4 open positions which more than covered the 23 small losses.You maybe cut out for trading but lacking the experience!

    how do you know when to throw in the towel?
    When its not fun!---and profitable is FUN.

    If I were you I'd trade a few here as paper trades (on the forum) and run the trade as if your in it---commenting all the way--setting a buy ---setting a stop---trading it and selling where ever you think you would.
    I and others here can comment and suggest how we would approach your trades,if we think there are areas for you to work on!

    You can then see if your ideas are working and learn a lot about your style.

    Who cares if you get it wrong---it will be cheap experience!!

    Dont step into the ring without a background in boxing!!

  3. #3

    Default Re: Trading Plan - Position Sizing

    Would you be kind enough to explain "bang for buck" please?
    I know it basically means best return for your dollar but could you elaborate?

  4. #4
    PlanYourTrade > TradeYourPlan RichKid's Avatar
    Join Date
    Jun 2004

    Default Re: Trading Plan - Position Sizing

    Just as an alternative, may I suggest 5x$2000 to diversify risk with tight stops based on near chart support? Use different industry sectors and types of stocks. This will mean you need lots of patience and perhaps won't compound profits as fast, but it'll limit risk, which I think is more important with a small starting float. Choosing trades carefully and only trading charts which allow that near support may help reduce the individual risk per trade further as your financial stop loss (eg percentage of capital risked via stop) will correspond to the chart stop. Just my opinion, not sure if this suits or if there is a technical weakness in my suggestions. To state the obvious you will be looking for volatile stocks to get adequate returns BUT what is your time frame for trading? I think days is too short unless you get an unexpected runner.

    I agree completely with tech re posting your trades live, it'll keep you honest, don't be embarassed, everyone has more losers than winners.

    Only 3 open positions sounds good too. Means you also have a safety net of $4k if all goes wrong (keep it in a cash mgmt trust if you can).

    These are just thoughts of mine and may not suit you at all, worth discussing the theory behind each approach though.

    My posts are not recommendations (even when I rave about something). Always rely on your own research & judgement.

  5. #5

    Default Re: Trading Plan - Position Sizing

    Bang for buck

    Its more about potential.
    When weighing up what to buy.

    There is actually a Metastock formula for it.

    ((10000/C)* (Mov(ATR(1),200,S))/100) In English

    Divide a $10,000 account by the closing price on any given day. This number is then multiplied by the average range of the stock for the last 200 days. Dividing this number by 100 converts the result to dollars and cents which inturn indicates the possible dollar return on any given day.

    So if we laid this indicator on 2 or more charts we would be able to guage which had the greatest potential at the time to give greatest reward.

    Lets take the following chart.
    Here I have compared ZFX with ERG. Now if both had given a buy signal and I had limited funds to choose which I could purchase---in this case ERG would be the choice out of the 2---higher B for B.

    This is not an indicator used to signal buys---its an indicator to guage choice!!
    Attached Images

  6. #6

    Default Re: Trading Plan - Position Sizing

    Thanks for your comments which I appreciate. Would you really go for ERG? Even though it has a huge trough and Zinifex has a clear uptrend? Bearing in mind ATR reflects volatility and therefore the potential for downward movement as well as up, I think I'd go the other way or probably more likely, disregard the B for B since you're not comparing two stocks with similar personalities.
    Richkid - thanks for your comments.

  7. #7

    Default Re: Trading Plan - Position Sizing

    Quote Originally Posted by Bin57again
    Thanks for your comments which I appreciate. Would you really go for ERG? Richkid - thanks for your comments.
    No No I thought I'd made it clear that this is NOT a buy signal indicator,and that these were just picked at random to show a comparison---neither would I touch currently.

    Perhaps it would be better for me to show 2 buys and then we place the indicator on each to evaluate which has the greatest "Bang for buck".

  8. #8

    Default Re: Trading Plan - Position Sizing

    No need. You do indeed make the point there would need to be a buy signal. Apologies, I missed that first time round. I see the point.

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