The easiest method is based on how many positions you would like to own. For example, if you have a $100,000 portfolio and would like to own a maximum of 10 positions, simply buy $10,000 worth of any stock. This is an OK method; it's better than choosing a number at random, but the second method is preferable.
Under this method, the position size is determined by the percentage of your portfolio you'd like to risk on a particular position. This number may vary depending on whether you choose to trade the Aggressive or Conservative concept. For Aggressive setups I personally risk between 0.20-0.50% per position; for Conservative setups it's 0.50-0.80%. Whichever percentage you choose, multiply it by the size of your portfolio, then divide that number by the difference between the entry and exit price. For example, using TRN from 8/18/08, risking 0.80% on the Conservative setup in a $100,000 portfolio, I get 209 shares.
Ticker | Entry | Exit A | Exit C | Chart |
---|---|---|---|---|
TRN (Trinity) | 37.31 | 35.34 | 33.49 | Chart |
($100K * 0.80% = $800 / [37.31 - 33.49] = 209 shares.)
A calculator is located on the right-hand side of the blog.
2 comments:
Chrib, how you come up with the exit price? is it based on historical volatily?
I'm a pattern trader. I look for setups that may unfold according to a particular pattern. For the exit, I pick a price that, were it to be violated, would invalidate the pattern, or at least make it look not right.
Post a Comment