Not enough money for full position size - help - Aussie Stock Forums

# Thread: Not enough money for full position size - help

1. ## Not enough money for full position size - help

I've been thinking about entering positions and the position sizes themselves recently. I have a question.

Let's say I have a system where I want to use my capital such that each position size is 1/20th my capital. For arguments sake, let's say I have \$100k and therefore each size is \$5k. This means I can take 20 positions.

I have this lovely trending stock that's appeared on my buy signal list. I want to enter the trade at \$5.50, and put a stop at \$5.00, so a risk of \$0.50. I want to risk no more than 1.5% on any trade, therefore my risk is \$1500. This means 1500/0.5=3000. So I can buy 3000 shares. However, 3000 shares at \$5.50 puts me at \$16,500 for the whole 3000 shares. I only want to use \$5000. Buying \$5000 worth at \$5.50 gives me 909 shares, but then with 909 shares my risk goes down to about \$500 and 0.5% risk [\$=909*0.50 = \$454.50; (454.50/100000)*100=0.45%].

Is there a way to do what I want to do? How do I keep the 1.5% risk but only use \$5000? Or is it totally fine to just drop the risk% in such cases?

2. ## Re: Not enough money for full pos size - help

Either the position size or the risk will have to be adjusted, but then you knew that.. How much risk to take on? Now that is another question only you can answer.

3. ## Re: Not enough money for full pos size - help

Originally Posted by Ato
I've been thinking about entering positions and the position sizes themselves recently. I have a question.

Let's say I have a system where I want to use my capital such that each position size is 1/20th my capital. For arguments sake, let's say I have \$100k and therefore each size is \$5k. This means I can take 20 positions.

I have this lovely trending stock that's appeared on my buy signal list. I want to enter the trade at \$5.50, and put a stop at \$5.00, so a risk of \$0.50. I want to risk no more than 1.5% on any trade, therefore my risk is \$1500. This means 1500/0.5=3000. So I can buy 3000 shares. However, 3000 shares at \$5.50 puts me at \$16,500 for the whole 3000 shares. I only want to use \$5000. Buying \$5000 worth at \$5.50 gives me 909 shares, but then with 909 shares my risk goes down to about \$500 and 0.5% risk [\$=909*0.50 = \$454.50; (454.50/100000)*100=0.45%].

Is there a way to do what I want to do? How do I keep the 1.5% risk but only use \$5000? Or is it totally fine to just drop the risk% in such cases?
Yeah, there are two ways of doing and you are combining them both. You can either use a fixed portion of capital and usually 20 portions is most effective (but you can test this if you are system trading..as i think you are).

OR

You can use a fixed percent of capital to risk on each trade. When pattern trading for example you can use 1% of capital and then use Fixed Fractional Positioning to calculate how many shares to purchase. 100k account x 1% = \$1000. Entry price - stop price = risk amount. \$1000 / risk amount = how many shares to buy.

I've not heard of a way to combine them both as they are mathematically opposed to each other.

CanOz

4. ## Re: Not enough money for full pos size - help

Originally Posted by Ato
I've been thinking about entering positions and the position sizes themselves recently. I have a question.

Let's say I have a system where I want to use my capital such that each position size is 1/20th my capital. For arguments sake, let's say I have \$100k and therefore each size is \$5k. This means I can take 20 positions.

I have this lovely trending stock that's appeared on my buy signal list. I want to enter the trade at \$5.50, and put a stop at \$5.00, so a risk of \$0.50. I want to risk no more than 1.5% on any trade, therefore my risk is \$1500. This means 1500/0.5=3000. So I can buy 3000 shares. However, 3000 shares at \$5.50 puts me at \$16,500 for the whole 3000 shares. I only want to use \$5000. Buying \$5000 worth at \$5.50 gives me 909 shares, but then with 909 shares my risk goes down to about \$500 and 0.5% risk [\$=909*0.50 = \$454.50; (454.50/100000)*100=0.45%].

Is there a way to do what I want to do? How do I keep the 1.5% risk but only use \$5000? Or is it totally fine to just drop the risk% in such cases?
Unless things have changed from when I was a boy – It’s not only totally fine to just drop the risk% in such cases, but ideal.

Two things happen when you buy close to where you know you are wrong (your exit). Your win% goes down but your win/loss ratio goes up. The later being more potent for expectancy then the former gives a better overall outcome.

Gaining good probability exposure at lowest risk should be the objective.

Until you have a handle on probability maths to an extent that you are not asking questions about position sizing on forums, splitting into 20 positions is probably about right – Your 1.5% fixed fractional should at this stage be a max exposure cap – If you can’t buy \$5,000 with-in your 1.5% cap then you are trying to buy too far from your exit. Move on and look for a tighter setup.

Don’t be put off that you seem to be risking far less than the theoretical allowable \$1500 – most people trade too big – 1.5%FF is much more aggressive than most people realise unless you have low slippage, a high win% system and/or (truly) non-correlated instruments.

5. ## Re: Not enough money for full pos size - help

Heres one system...US equities, 100k, 2003 - 2013

First report is 2% equity per trade.

Second is 5% equity per trade (equity / 20)

CanOz

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