Position Sizing and morning watch

Position sizing

Figure 39 this is what can happen if you don't manage risk with optimal position sizing

    

This is probably one of the most important, if not, the most important area that is likely the most overlooked and abused by new traders.

Ideally you never want to risk more than 1 to 3% MAX of your entire account value in one trade. An optimal position size should be determined by the risk you are intending to take. Let’s assume for example you have a $6000 dollar account. That means you are limited to taking a loss between $60 and $180 on any one trade. When deciding whether or not to take a trade you must know where your stop will be placed.

Now let’s assume you are considering taking a trade in a stock that is trading @ $4.90 for the five dolla holla round number roll. There is decent support at 4.79 and you would be comfortable placing your stop @ 4.75. You are risking .15 cents per share so if you are looking to only risk 1% or $60 dollars of your $6000 dollar account you would trade 400 shares or $1916.00 with a 4.90 entry. If you are willing to risk 3% or $180 dollars of your account you would trade 1200 shares or $5880.00 with a 4.90 entry. For beginner traders I strongly recommend sticking to the 1% target. Keep in mind that you are risking more in dollar terms and if the stock were to get halted you have a significant amount of your portfolio at risk. However, if you are trading with a specific plan and you have your stop set, barring any extraordinary event occurring, you have clearly defined your risk, as long as you adhere to your stop loss.

Knowing the amount you are risking with your stop will help you determine your position size. If it’s a dollar risk to your stop on a 60 dollar stock you can take 60 shares on the trade. If it’s 50 cents on a 25 dollar stock you can take 120 shares. If it’s 5 cents on a 2 dollar stock you can take 1200 shares. Each trade is risking 1 percent or 60 dollars from a 6000 dollar account.

For some traders setting a daily, weekly or monthly stop level is incorporated. They are seasoned, full time day trader’s that have an established track record of consistent positive returns. They often make split second judgments on position sizes based on the action in the stock and set a limit near or equal to their average return per day, week or month. So if they average $500 a day in profit they may have a stop of $450 dollars for a day. Once they hit that amount of loss they stop all trading for the day. One losing day will not impact their week but walking away once they have lost their allocated amount does give them control of their overall risk.

For larger account sizes of say 100k and up, you may choose to have a fixed dollar amount like $800 dollars which is significantly less than 1% risk. So if you take a trade on a 10 dollar stock and you have a stop risk of .50 cents you can take 1600 shares if the stop is triggered @ 9.50 you lose $800.00.   

Position sizing will vary upon experience, comfort level, track record, and account size for each trader. If you take a trade and you instantly go into panic mode when the stock drops 10 cents you are trading outside of your comfort level. This can lead to emotional reactions and should tell you that you need to reevaluate your position sizing strategy to something more suited to your risk tolerance.

Make sure you have an escape plan to help determine your position sizing.

Good morning,
I had a couple of meetings yesterday which prevented me from trading, I missed entry on several good setups for day trades early in the morning.
For a day where there was a sea of red first thing in the morning the price action was actually fairly positive. This morning we are looking like we will have a green open. I wouldn't be chasing anything but I will be looking to play any setups that develop.

Morning Watch List 
CPRX pr last night sweet looking daily, VIMC pr gapper, EBAY pr gapper, PGNX pr last night decent daily,RADA continuation?, HIMX for the 10 Dolla Holla, CANF pr could be a bounce play, CRNT pr thin one possible trend line break, SCON Divested their equity interest in RESN SCON could be the one to watch, WYY PR like the daily already a swing for me, TASR PR nice international order already a swing   

Link to good article on IPO's due this week
http://email.seekingalpha.com/track?type=click&mailingid=2529465&messageid=author_rta&databaseid=&serial=author_rtaO2529465O1412039347.efd1c4e283b025a80b1a8b7afbc9fb55&emailid=alphawolfvegas66%40gmail.com&userid=9332121&extra=&&&3000&&&http://seekingalpha.com/article/2529465-11-ipos-planned-for-the-week-of-september-29-4th-quarter-kicks-off-with-a-1-billion-ipo?isDirectRoadblock=false&source=email_rt_author_readmore&uprof=51

Best of Success!


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