Bigger Is Not Always Better

 

 

 

 

 

Sometimes it’s the little guy that wins the race.

One of the things I did when I moved to technical analysis from the fundy side was to reduce my position sizes. I was feeling very risk averse and I started out REALLY small.  I have since tweaked my style and my rules and have determined that 7% is the perfect position size for me. I will take partial positions and add to them in many cases. And I like to take some day trades so this leaves some room for those too. AND I just prefer a smaller risk profile….gives me 0.5% potential loss per trade. If I am only 30% invested because I am unsure of market conditions, I would rather that 30% be diversified in 4 or 5 positions versus only 2.

Folks have suggested to me that my position sizes are too small. I feel it is personal and each trader must determine what is right for him/her.
The first thing that comes to mind is that if $SPRD had been a 15% position instead of my 7% position – the loss would have been an entire percent of total portfolio (instead of the .5% that it was)…I have to consider who I am as a person and I size according to what I am comfortable with. That said, if $CONN had been double the size, those gains would have been double too, so I suppose it all comes out in the wash. BUT I don’t size positions according to how much I want in gains, I size based on how much I am willing to lose. I spent some time getting this right, so I am loathe to change it.

The long and short is that I need to be able to check my emotions and I know what size losses trigger an emotional response in me. The one time I changed it was when I was following “Bill”, and it really messed with me, so back to my smaller sizing I did go. This does present one challenge…it is too easy to take too many trades, so I have set a rule to limit myself to no more than 15 positions because more is really difficult to manage, but I have been doing a good job of keeping it under 10 by taking profits or dropping non-movers whenever I take new trades.

I rotated my port yesterday. …took another third off $CONN for +41%. I also sold my very small $CROX +9%, $USAT flat, & $FTWR +15%..as well as my $ISRG calls for +113% (hat tip to chessNwine in 12631). I picked up $MPEL, $MIPS, $LAVA, calls in $PCLN & $GLUU, but sold half of $GLUU before the end of day for a 10% gain because….it had a 10% gain, so I locked in some profits.

As I approach my final days as King this month, I wish to thank you all for putting up with my rants. I have enjoyed sharing all my emotional turmoil with you. My last post will be in answer to a special request by @lg regarding placing stops.

Stay tuned.

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