Position size

[Horsefish]

I had a really great week. The positions I took seemed to be right in terms of market direction. All short term.

I would be interested in what the experienced traders and professional traders on this forum use as criteria for determining how many shares of a stock to buy when setting up a trade.

Is it just a matter of available capital or is it risk management? The reason I ask is that I have been severly limiting myself to smaller positions because of the volitle nature of this market. For instance, this week I bought 100 GS at 150.10 and sold it at 159.20. I could have just as easily bought 500 shares. Same with RIMM and several others.

Any feedback greatly appreciated.

[Thierry Martin]

I had a really great week. The positions I took seemed to be right in terms of market direction. All short term.

I would be interested in what the experienced traders and professional traders on this forum use as criteria for determining how many shares of a stock to buy when setting up a trade.

Is it just a matter of available capital or is it risk management? The reason I ask is that I have been severly limiting myself to smaller positions because of the volitle nature of this market. For instance, this week I bought 100 GS at 150.10 and sold it at 159.20. I could have just as easily bought 500 shares. Same with RIMM and several others.

Any feedback greatly appreciated.

I know that some traders never risk more than 5% of their capital on a singl trade. This assures that a trade gone bad doesn't wipe you out financially or emotionally. Many new traders risk way too much and after a good run lose everything, especially when the market moves against you.

[aiki14]

I had a really great week. The positions I took seemed to be right in terms of market direction. All short term.

I would be interested in what the experienced traders and professional traders on this forum use as criteria for determining how many shares of a stock to buy when setting up a trade.

Is it just a matter of available capital or is it risk management? The reason I ask is that I have been severly limiting myself to smaller positions because of the volitle nature of this market. For instance, this week I bought 100 GS at 150.10 and sold it at 159.20. I could have just as easily bought 500 shares. Same with RIMM and several others.

Any feedback greatly appreciated.

Great question and congrats for making money in this market.
Risk management is the Key. I start with an assessment of how much portfolio risk I am willing to incur, which is essentially the percentage of my investments I want in equities. Thats based on my Age, market assessment, real estate market assessment, alternative investments, liquidity needs, and the fixed income market. I am in a historically low equity percentage currently, around 40%
Next, I determine how much I want in actively traded positions, usually around 15% of my equity portfolio.
Then I determine how much I want to risk on any one position, as a percentage of my trading portfolio, which is usually 20%
Then lastly I determine if the position itself warrants the maximum or some other amount. If I am very confident I might pull the trigger for 1/2 of my max position risk on the first buy.
I also want to have a max loss in my mind on any position to exit on, usually 3-5% on stocks and 25% on options (although I use a dollar amount rather than a percentage most times)

Never second guess yourself on winning, you could have doubled your position and had it go south. Keeping your risks assessed and properly managed is the secret that separates successful traders from wannabees and amateurs.

[Florida]

I had a really great week. The positions I took seemed to be right in terms of market direction. All short term.

I would be interested in what the experienced traders and professional traders on this forum use as criteria for determining how many shares of a stock to buy when setting up a trade.

Is it just a matter of available capital or is it risk management? The reason I ask is that I have been severly limiting myself to smaller positions because of the volitle nature of this market. For instance, this week I bought 100 GS at 150.10 and sold it at 159.20. I could have just as easily bought 500 shares. Same with RIMM and several others.

Any feedback greatly appreciated.

Some pretty good information has been shared with you already, but if I may, I will add my 2 cents worth.

As stated in one of the previous posts, you must determine what the maximum loss is that you can take on any given trade in dollars and cents. Once that is determined, you need to determine your stop price, and the goal. You can then determine the actual size of position in shares that you want to trade.

For example, if you have a limit of $500 that you are willing to risk on a given trade, and your stop is $1 below the proposed entry level, you can then size your position at 500 shares. If the stop is only $.50 below the entry, then you can safely trade 1000 shares, and so on. If it is not likely that you can achieve at least 2 if not 3 times or more the potential profit in a trade before reaching strong resistance levels, then don't enter the trade. Most importantly, respect your stops and get out if the trade goes against you, don't try to rationalize the move and stay in longer, and certainly do not average down by buying more.

Once the trade starts moving in your direction, you can move the stop up to protect profits. If you are approaching your target, and believe the stock can continue, you may opt to take half the position off at the target, and let the balance ride. Of course if this happens, move the stop up to a real tight range to keep your profits in your pocket.