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Risk Management

QuestionsCategory: QuestionsRisk Management
Cristian Villanueva asked 5 years ago

Hi Pat,
I hope you are well, I thank you for all the videos and knowledge that you share on them.
I have some questions, so, here we go:
1.- What would be the appropriate way to "Scaling-out" the position if the breakout is not as expected, in terms of percentages. For example, I “pyramid” the entries (50-30-20) between a 5% range from pivot point. If after the breakout the price reverse and it started to trigger your sell rules, how do you suggest to go "scaling out" the position ?; In terms of percentages; from highest to lowest (for example; 50%-30%-20 // 50%-20%-20%10%) , in equal percentages or otherwise?;
2.- Due to I have a full time job, I must configure previously (night before) the buy stop as well as the stop loss; In that case, I cannot fully benefit from the signals you deliver through twitter, because I do not check the social network during the day to see if a purchase or sale alert has been generated.
Considering the above, I "bet" that the breakeout will be done with good volume, which sometimes triggers my buy stop without volume and then I must sell it or wait a while to see how it behaves and adjust my stop as much as possible. How you would handle this?
The same for the stop loss. Sometimes it is said, for example, "to sell if it closes under the EMA of 8 or 10 ... etc", but because I cannot track it during the day, I must configure the sell stop beforehand (for example below the 8 EMA, or 10 EMA, or below the previous low pivot; whatever sell rules), this sometimes generates that in situations the price crosses below the sell rule (triggering my sell stop) but end the day in the middle of the day range or above the EMA, or above the low pivot, etc.

What do you suggest in this case for those who have a full-time job? Configure the sell stop even if it involves selling a part or the entire position if a shakeout is generated under a certain EMA or other sell rule?

The other option is not to set the sell stop and see how the day closes, however this could cause the closing to be well below the sell stop price, which would increase the loss.
Surely, if I could check the chart during the day, and if I do not see an important selling volume, even if the price crosses below the "sell price" I could wait until the end of the day, but I have not have that chance.
3.- And my last question it is regarding position sizing. I risk a maximum of 1.5% of the account per position. This, depending of the stock price and the% stop loss, gives me the amount of shares I can buy. (for example, 100 shares would be a full position)
If you were follow a similar rule and are in a winning position, would you buy more than 100 shares? This would involve risking more than 1.5% of the account. Are there situations in which could evaluate "breaking" the rule of risking 1.5% of the account?
Thanks in advance.
Have a nice week.

2 Answers
Avatar photoOwen Staff answered 5 years ago

Hello Cristian,
Video from Patrick:
https://youtu.be/M2wCNYTnQZw

Cristian Villanueva answered 5 years ago
Thank you very much for your response Pat! As always, you have been very clear in your explanation.
Have a nice day.