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Position sizing

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James Goold asked 4 years ago

Hi Pat,
I’ve been trading too small since the market started to improve with a full position being <0.2% of capital based on my stop.  I’ve been trying to tweak my strategy to force me to be more aggressive but not over expose my capital to risk and have come up with the following:

  1. A full position will risk (based on the stop) 0.5% of my capital which I will attempt to get to by initially buying 0.3% then 2 tranches of 0.10% each;

  2. The stop will be set based on where the chart tells me the trade has failed.  If the required stop is >6% I will not take the trade;

  3.  No position will be greater than 10% of my total capital in absolute amounts;

  4. The aggregate of all my risk, based on the current active stop loss levels, will be no more than 5% of my capital.  This is based on the fact that although we buy individual stocks or ETFs there is correlation within the market; and, 

  5. I’ll own no more than 5 stocks but excluding those that are on a clear uptrend, where I’ve already taken profits and are now simply being monitored (“runners”).

Does this make sense?
Apologies for such a long and detailed question and please point me to another video if you’ve already covered this.
Thanks, Jim

1 Answers
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Avatar photoOwen Staff answered 4 years ago

Hello Jim,
Pat made this video for you:
https://youtu.be/yp1L-Fe9zqY

James Goold replied 4 years ago

Thank you very much, guys. A very detailed and helpful answer as usual.

Yes the 5 stocks does clash with the max of 10% in any stock but this 5 does not include runners (ie stocks that have gone well, I’ve already taken profit and now only hold 30-50% of my original position). Nevertheless I agree 5 is too small even allowing for holding runners so 6 or7 is probably the maximum number of stocks I should hold, excluding the runners.

 

I've noticed this morning in the UK market that my determination to  stick to my higher position sizing has meant I've passed on a couple of setups that were not optimal but I might have taken if I was risking less.

 

Cheers

Jim