Position Sizing Tips
I wanted to add this article on position sizing tips because the topic is complex, often interpreted in different ways, overlooked and an important part of trading.
One of the first things to understand as I've mentioned elsewhere on this site, is that position sizing is a form of money management and determines "how much" or "how many shares" of any one position should be.
The main goal of position sizing is to help meet an end result of the "Big Picture" while helping to minimize potential risk, not to psychologically provide a way to help make up for past losses in the shortest amount of time.
Using position sizing correctly can put you on the right path to being successful at stock trading while using it incorrectly can lead to a very short trading career.
You will often see me state that a common method to determine position sizing is to use a percentage risk of a total portfolio method. The free position sizing calculator I offer is an example that uses this basis as a starting point.
In addition to this page, you can find more free information on position sizing tips on my other page here: Position Sizing: Using Good Money Management.
I will be adding more pages on this topic in the future so check back soon or better yet, subscribe to my free newsletter to get any updates and examples on this topic as they are posted.
What many people don't realize is that there are other methods to determine position sizing as well, and each method has various things to take into consideration before coming up with the final number. The calculator for example, is a simple tool to use and should only be considered a starting point of the final calculation.
Without knowing each persons type of trading, whether or not positions are held overnight, specific trading rules, portfolio size, profit targets, entry and exit methods and other things, using the calculator alone, or any single formula for that matter, would be inaccurate.
While there are books written soley on this subject, I cannot fully explain everything that's involved with understanding this topic in a few web articles due to the complexity of the topic. For this reason, the best position sizing tips I can give you can be narrowed down into one: I would highly recommend to consider reading a book or viewing DVD's on the topic such as:
- Definitive Guide to Position Sizing book by Van Tharp
- Position Sizing DVD's by Van Tharp
- Trade Your Way to Financial Freedom book by Van Tharp
These books and dvd's go into detail and provide various examples using several techniques. This topic deserves, and requires, more than I could write in a few web page articles as I mentioned above, which is why there are books on this one topic alone. The references I have listed are considered by many to be the best in the industry.
To get a copy of my free position sizing calculator, consider subscribing to my Free Market Trader Newsletter. You will receive a link to download the calculator once you confirm your subscription.