How To Position Size Like The Pros
The Dynamic Wealth Report
April 30, 2010
by Corey Williams, Editor
I’m sure you’ve heard by now.
We’re getting ready to launch our new leveraged ETF trading service
called Quick Strike Trader.
I’m really excited for you to see this system in action. I’ve poured
endless hours into researching and testing. I’ve refined the system into
the trading service you’ll be able to get your hands on in a few days.
Today, I’d like to tell you about one piece of the Quick Strike Trader
trading plan… Position Sizing.
And the best part is, position sizing can be used with other types of
investments and trading strategies. It’s not exclusive to trading
leveraged ETFs. (You can use it in your own trading as well.)
You may be wondering why I’m pounding the table on position sizing.
It’s simple. Position sizing is what separates professional traders (who
make a lot of money) from those who lose money trading the markets.
Good position sizing will increase returns and limit risk… And who
doesn’t want that?
-------------Sponsor-------------
Where Can You Turn $300 Into $1.3 Million Right Now?
Our own small-company specialist, Robert Morris, has found a
way to 'sniff out' tiny penny stocks on the verge of a major breakout. And
the timing for this has never been better.
You see, the system takes advantage of an obscure SEC regulation that
sends penny stock prices through the roof.
We've seen some stocks gain 852%... 5,450%... even 17,496% in no time
flat.
Click here
for the details...
-----------------------------------
Limiting risk is important because there’s nothing that will knock you
out of the game faster than losing money. Hey, it’s awfully hard to trade
if you don’t have any money! (It’s a lesson I learned the hard way years
ago when I was just starting out.)
Even if you have the best analysis, the best system, or the best
technology, there’s one thing every trader must accept. Every trade
isn’t
going to be a winner.
In order to stay in the game, you need to be able to handle the losing
trades.
Position sizing is how professionals ensure they’re able to stay in the
game.
The position sizing rule we use in Quick Strike Trader is
percent risk.
Percent risk is how much of your total capital you’re willing to lose on
a single trade.
Most experts agree you should only put 0.5% to 4% of your capital at
risk on a single trade. And with really volatile investments like
leveraged ETFs, you might want to keep it under 2%.
So if you have $10,000 to invest and put 2% at risk, you’re only risking
$200 ($10,000 x .02) on any given trade.
But that doesn’t mean you’re only going to buy $200 worth of the stock
or ETF. Because you’re never going to hold it until it reaches $0. (And
if you’re only investing $200 in each trade, your broker’s commission
will eat up the majority of your profits.)
So you need one more piece of information… a trailing stop.
A trailing stop is a pending order to sell an open position once certain
criteria are met.
The type of trailing stop I use most of the time is percentage change.
For instance, a 10% trailing stop tells your broker to sell the stock or
ETF if its price drops 10% from the highest point it’s reached.
I could go on and on about trailing stops (and I do in the Quick Strike
Trader Operating Manual) but I don’t have enough room to go into all the
details here.
Just remember, a trailing stop limits the amount you’re willing to lose
before you sell.
Once you determine the trailing stop percentage, you know how much money
is at risk on each share you buy.
Let’s say you buy an ETF for $50 a share and set a trailing stop at 10%. If the ETF drops by $5 ($50 x .10) to $45, your trailing stop will
trigger. And your broker will automatically sell the ETF. In general,
the most you can lose is $5 per share.
Now all it takes is some simple math to get your position size right.
Let’s put our earlier examples together…
You’re risking 2% of your $10,000 in total capital. That’s $200 at risk
on each trade. And you have a 10% trailing stop. So the most you can
lose is $5 per share.
Divide $200 (risk per trade) by $5 (risk per share) to get 40 shares.
By buying 40 shares at $50 apiece, your cost is $2,000. But the most you
can lose with a trailing stop in place is $200.
In a nutshell, that’s how position sizing using percent risk works.
This is a powerful position sizing system with a track record of
increasing returns and limiting losses. It’s one way professional
traders cut the losers short and let their winners run. And that’s the
name of the game when it comes to successful trading.
***Editor's Note*** Well we're just a few short
days away from the launch of Quick Strike Trader!
Interest for this revolutionary system has been off the charts- and as
you know, we're only going to accept 800 new members. So make sure
you're ready on Tuesday, May 4th at noon eastern.
Here's the
page with all the details...
• Forward Air (FWRD) was upgraded by Stifel Nicolaus
this week. They now have a hold rating on the stock. The air freight
company is riding a wave of momentum in the transportation industry.
• Green Mountain Coffee Roasters (GMCR) was downgraded to hold by
Dougherty & Company. Management said Q3 profits will be weaker than
expected.
• Phoenix Partners Group started coverage on The Gap
(GPS) this week with a buy rating. The clothing retailer’s March sales
topped expectations.
Print
Page
Bookmark Us
Home | Whitelist Us |
Terms of Use |
Privacy Policy |
Contact Us | Security |
Site Map