Position Size Problem

[daytrade999 10]

Hi All,

 

I need help on position sizing. Please help.

 

I understand most of the things about position sizing. But I am having troublew understanding how to use for example 1% per trade.

 

Ex. If i have 100k 1% is 1000, So if I bought a stock for 40000. What do I do with the 60k if I want to take another position ? Do I risk 1% of 60k of the original 100k?

 

Question 2: When do I adjust my capitial if I have a drwadown ofd 10%? Do I still use 1% of 100k? of the drawdown point of 90K?

 

Help plesae thank you . Good trading all

[SIUYA 11]

There is no right/wrong answer here.....

 

but generally....

You have 100k equity and you are willing to risk 1%=$1000, that will mean that each trade you do should risk $1000.

 

However - you should ensure that you understand that if the trades are correlated then you effectively have the same trade on and are risking 2%. So you can either drop the size of each trade down OR, take one trade at a time OR wear the risk OR hedge somehow.

 

When to adjust the capital....see point above, but ideally you should be doing it for each and every trade. (remember you equity at the time of putting on the 2nd trade is still probably 100k) Maybe you do it at the end of the day/week/month... maybe you do it at certain % of equity levels, or when you exit a trade.

It depends on what you are trying to achieve and there are plenty of sources around the wed to be able to compare various methods based on your trading history. There is no substitute for doing your own homework and proving to yourself the method you choose is likely to be the one that will achieve what you want to get.

[tradingwizzard 10]

Hi All,

 

I need help on position sizing. Please help.

 

I understand most of the things about position sizing. But I am having troublew understanding how to use for example 1% per trade.

 

Ex. If i have 100k 1% is 1000, So if I bought a stock for 40000. What do I do with the 60k if I want to take another position ? Do I risk 1% of 60k of the original 100k?

 

Question 2: When do I adjust my capitial if I have a drwadown ofd 10%? Do I still use 1% of 100k? of the drawdown point of 90K?

 

Help plesae thank you . Good trading all

 

good advice on the previous post and also try to understand that the equity is the most important one....this is misleading all the time

 

TW

[BlueHorseshoe 10]

Also bear in mind that the 1% rule (otherwise known as 'fixed fractional') has developed more from the leveraged futures industry (look at the Turtles, for example). It's not necessarily relevant to what you're doing with stocks if you trade without leverage.

 

For instance, if you're trading the ES on a $5k account, then a 100 point adverse movement will wipe your account out. If you're trading the SPY exchange traded fund with no leverage and all your equity invested, then it would require a 100% adverse movement (ie the whole index goes to zero) to wipe your account out.

 

So whether you use leverage or not tends to make a difference to how you should size positions.

 

Hope that helps!

 

BlueHorseshoe