We pore over those books like “Monster Stocks” or “How to Make Money in Stocks”. You see the charts of stocks making huge moves and start thinking “just a few of those and I’m on my way to early retirement”. In reality, they are trying to capture 10 to 20 percent of a move.
For 2011, toss out those grandiose expectations and start thinking small, small gains are good. Small gains combined with proper risk and position sizing can lead to triple digit gains over a year.
For my method, I am looking to sell when I have 6% or greater on any given trade. Rinse and repeat. Most likely you are trading a different time-frame with different stocks. You need to figure out what is optimal for your style.
It’s not as glamorous as hitting the home-run, but it is a way to generate consistent and stable trading method that will pay out year over year.
A starting point for proper position sizing would be the risk calculator:
https://spreadsheets0.google.com/ccc?key=tPsi6_zBWMtmIhTfOd3_AIg&authkey=CN-p3dMI&hl=en&authkey=CN-p3dMI#gid=2
Happy Trading
4 Response to Think Small for Big Gains in 2011
I like the example risk calculator but I have a question about one formula.
The formula for total investment is '=H12 * H8 * D16 * 100'. I guess I expected it to be something like number of shares * entry price.
Is this right? Or am I totally missing something?
Thanks for the post!
-Peter
That formula looks incorrect to me Peter. Will take a look at it and fix.
thanks for the heads up.
There is another benefit of closing a trade when a profit target is hit. It reduces the variance of the results. Lower variance means less expected risk, smoother equity curve and possibly larger position size.
A great resource about expectancy and position sizing is Trade Your Way to Financial Freedom by Van Tharp.
Thanks B7, will check it out.
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