To overcome own comfort zone is no easy. I with this “problem” decided to measure in 2016. I felt very comfortable with the position size that I’ve played in recent years. I was comfortable both with the risk to which I expose myself and profits which I generate summary.
However, I realized that actually I can do the same with a bigger size, which will lead to even better results. Of course, theoretically! Because it not so simple. Today I will tell you, how I increased the size at one time – in the process reaching a level on which I stopped. Next I will describe how currently I change my size.
In the text I will be writing interchangeably: position size, size, and sizing. This way we simply say in the office „what size”, rather than „how many shares do you have at the moment in opened position my friend” :).
Change of sizing when I started
In 2004-2007 I had no assumptions as for played size. I just played by sight. It changed diametrically when I started in the proptrading office. There change of sizing was imposed by the risk management system in the office.
For the start I could trade:
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with 100 shares
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I had 50$ daily of stop loss (when I crossed 50$ losses in the scale of day I couldn’t farther trade)
It seems that it little. But with such 100 shares, it is possible to ern 1000$. When beginner traders contact with me, who want to trade through my trading group, they cannot understand when I’m telling them to start with 100 shares and steadily increase it. At once they want to play with bigger sizes. Unfortunately, most of them quickly loose. In my opinion it is an effect of the fact that they don’t have, apart position management knowledge, healthy approach to understand that along with development and better results, only then to trade on bigger positions. In my opinion, it has much more sense in the long term if you want to stay on the market.
Management of the position size – what for?
The issue of proper management of played position size is often overlooked by those of you, who just begin on the market.
I had such an approach when I started learning stock exchanges – in 2004-2007. In principle I played then how it suits me. Sizes one larger and sometimes smaller, without unnecessary establishments when I to open bigger position, when to reduce it, etc.
What position size you trade is very important; particularly, when emotions take control. With the lack of experience and specified strategy – you are able to trade positions, which you won’t be able to appropriately manage.
In my opinion, it is worthwhile to make for yourself a specified plan. Start your trading with minimal positions on which you can trade. Most importantly to prepare the plan, how you are planning to increase played size of position.
In this respect, consider such factors as:
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Generated results
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Changes of the amount of held deposit
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Changes in your psyche
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Influence of emotion on made decisions
Those can be variables, which will affect your planned size to trade. Don’t make the mistake of starting with bigger size, when just learn how to trade.
Usually, at the beginning we must plan our strategy. In my opinion, it is worthwhile to do it at once on real account in order to feel emotions. However, we don’t have to trade at once e.g. 1000 shares, but begin with 100 shares. You will prepare the strategy, you will develop it, and then you can change sizes. Then it will be useful to have written out plan ‘how are you going to do it’.
How my size increased
In the proptrading office my maximum size was increased twice, when I had 3 days in a row on the plus or the entire week was finished positively. From 100 shares it was 200, later 400, and later maximum 800, etc. Until I reached a total level of several dozen k of shares, with which I didn’t traded on one position.
However, it’s only maximum size, which I could trade on one position. But actually I traded with a size between 1000 and 3000 shares, depending on the situation. Sometimes I added more, but it was about < 10% of all transactions.
What’s important
Well, in addition to changing size, another issue was really important. And what’s more in my opinion, it should give you some thoughts. I use it up to this day.
My size was increased in such a way as I described above. At some point I had no longer need to further increase it, because I wouldn’t even use this size.
I will turn your attention to other aspect. Size went up when results were positive. When results were positive also my daily level of stop loss increased. As I remember, the stop loss level it was an average of several sessions, from which were deducted two extreme. Also when I had a good period in trading, my stop loss took out e.g. 1000$, after which could decrease to 250$, etc. It was great, additional risk management. Since results are rising, I can risk more, to play bigger size. When results fell, I didn’t afford to disproportionate losses. I was limited by the system, which was in the platform.
How is currently
From 2016 I started systematically to increase played by me size. From let us call it standard 1000 shares initiating opening the position (or more depending on what I traded) I started to increase played size.
However, I don’t do it by sudden increase. If in some strategy I added 1000 shares I didn’t start the day by adding 3000 shares. When in other I added 4000 shares, I didn’t start suddenly to trade in the same style with position of 10 000 shares. Why? Because such irregular changes don’t work for me! Strong change in played size, it is also an impact on psyche and emotions, which accompany in such a position. In my case, a gradual change of size works for me.
I currently change size by 200 shares up when:
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the week I finish on satisfying plus (and also on plus to which I generated at the prior of size change – so that I could see the effect of increase in results of played size)
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played size doesn’t affect taken by decisions. I.e., in short, my head fully accepts an increase of played size
In relation to daily level of stop loss, here I also apply similar assumptions. I look at 10 last sessions and my stop loss doesn’t constitute more than 50% of average daily result in this period.
Traps in changing size
In my opinion, it is very important not to look at carried out profit when you want to change the size. Because your head can also be accustomed to the fact that e.g. on the given position on average you carried out e.g. 500$ of profit. Ok, you did it by trading e.g. 1000 shares. When you change the size of position and you’ll to the level of 2000 shares, the average profit should be around 1000$ of profit. Simple math! However, it may happen that you will start more quickly to carry out profits, because 2k of shares gives you the same as previously 1000 shares, so its position to close.
It is a vicious circle, because actually in this case you increased your risk, and you didn’t change the potential profit.
Another appearing problem is a regression to previous size.
What I mean: you trade e.g. 2500 shares as initiating size. You will carry out 5 transactions all failed. Next opened position already has a size of 1000 shares. So you drastically decrease the size. Does it make sense? In my opinion it doesn’t. In trading, when you have your strategy which works with a particular effectiveness… you can have a few failed transactions in a row. And after that you will decrease the size and next transactions will already be successful, there won’t be adequateness. Because where it supposed to be, since along a few unsuccessful entries you reduce your size, you are playing less.
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5 x transactions from stop loss with 10 cents on 2500 shares is a total loss of 1250$
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Another 5 transactions trading with size of 1000 shares and profit of 25 cents: it’s 1250$
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If played according to assumptions of strategy and position management, then the profit would be 3125$
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As you can see by reducing size barely you would be on 0. Trading with assumed size, generally a profit will appear.
Summing up
There is no position management of the size = sooner or later you will lose. I won’t change my opinion in this subject. If just begin, you should consider and plan how you will change the size along with development and account balance.
How do you manage the position? How do you change the size, which you trade? I’m very interested in your point of view. Maybe I will take advantage of something interesting. Write a comment below.
