Think Risk

[Eagle]

RISK


Learn all you can about risk and its effect on position sizing. Well what is your tolerance? Most use a equal units approach where they use the same amount of money per position with the same risk.. Nothing wrong with this but I feel if you haven’t looked into building positions based off volatility you should. It is a system that defines risk with a set amount of shares based off risk not to exceed the traders tolerance. Example you might be risking 11% on a trade but in reality because of position size you might be only risking 1% of your total capital. Interesting to explore and another great thing is stops are placed outside the daily noise and so you don’t need to baby sit positions. Now is it fail proof nope.. You will get whacked and stopped, as this is the only thing I would guarantee.

If anyone who trades gets a good grasp on risk you will lose little money and have the possibility of staying in the game and make money. Don’t swing for homeruns because base hits often win games. When you feel like your on top of the world and get cocky sell everything you have because this might be a sign that the reaper is coming for ya..hehe Yes when it comes along let your profits run as this makes up for all those little loses. Remember the house has the advantage just like in Vegas. If you lose like 25% of your capital making 25% does not set you to break even. You will need to make 33 1/3% more on your next trade just to break even from a 25% whack. Position sizing is key and learning this just makes sense. I use a 1% model of total capital in any one position. Some use more but higher risk could mean higher reward with using more shares, but the house is looking to take your cash and it cares less about anything else.

Most spend hours or years trying to figure out when to buy but give very little though on when to exit.. In the end it is not the entry that pays you, but the exit..

Happy trading!!

[aquaswim47]

I think everyone in finance knows that if an investment goes down 90% and you sell it that your next stock must go up 900% just to break-even, but that if you have half your money in one investment and half in another, the other investment simply has to go up 90% for you to break-even. That's because with one investment, the money is already gone and only 10% is left, while with two stocks, 55% is left.

[Eagle]

Hello Aquaswim47 well your probably right but this post would not be addressed to those who are finance savy, but maybe those just beginning this journey. I think this single topic is the most misunderstand and so that is simply why I thought I’d post it.. Very basic for some but for others they have not given Risk/Position sizing any thought. Most traders I know focus purely on some top secret entry. If some are interested I can download an excel program that one could use to place numbers in that will show you position size, Risk/Reward ratio and profit and lose based on total capital. You plug in your numbers it tells you how much to buy… This how much to buy part is what is a very important aspect of all this, but yet not talked about very much..

If everyone on this forum is finance savvy well then let me know and or just dismiss this post as this might not apply to the forum..

[aquaswim47]

In the short-term, I believe SSO and DDM could provide equivalent risk-adjusted returns to SPY and DIA; however, I think over the long-term, the crowding out of the security could make it more difficult for the ETF to find futures that will allow it to consistently trade at 200% of the S&P 500 and Dow Jones Industrial Average. They might have to curtail their strategy or use margin and in either case, the average rate of return would go down. People's portfolios could be wiped out if SSO or DDM ever got a margin call.

I'm beginning to like those ETFs just not for my portfolio yet.