Sizing and Points!
First off, I want to thank you all for what I will consider a successful first week. ShortMeTina’s page stats indicated we had over 1,000 unique visitors since going live a week ago. I am humbled and more importantly, I truly appreciate the support. The overall goal of ShortMeTina is to build a powerhouse of knowledgeable speculators right from Main Street.
Now that's out the way, I want to speak on a few key points. The topic I want to touch on today is appropriate sizing for individuals that are having a hard time showing consistent profits. If you’re constantly losing money or you make money today to then give it all back tomorrow, this blog post is for you.
Like I mentioned before, only 5% of traders consistently make money and I want you to be in that 5% bracket.
What can you do to tip the odds in your favor?
I find most traders get caught up by risking too much and betting too largely. This isn’t the best way to trade if you haven’t turned a profit yet. Start trading small. By small I mean, no more than 100 lots (shares) at a time. Trading small allows you the room needed to see if your trade will actually work. You’re less likely to jump out because the draw down, if you trade small, should be minimal. Trading small gives you the fortitude to remain in a trade and more importantly; the trade is given the needed time to work.
For those with smaller accounts, trading small may mean only buying 25-50 shares of any given stock.
You ask, “how can I grow my trading account buying only 25-100 shares at a time”?
The answer to that actually brings me to my second point. You should be looking to trade stocks that can potentially provide you with a solid amount of points. Aim to find stocks that offer extremely great risk/reward. That means, look to trade stocks offering up no less than 5 points.
Begin thinking in terms of points and not monetary dollars. Your aim is consistency. The money will follow.
1. Trade small. Lots of 50-100 per ticker (don't worry. You'll begin to scale up once you start to show consistent profits). Our goal is to build good habits at this stage.
2. Don't think in terms of monetary gain. Think in terms of, I am placing this trade because it can give me 5-10 plus points if right. Minimal draw down if wrong. (This forces you to think of placing your money only in favorable situations).
Short Story: Tina only takes 1 trade per month because she’s super selective in her selection process. Her aim is to find a stock that can offer her 10 plus points if right, minus 1 point if wrong. She only buys in shares of 100. Tina has done this for many years. How does Tina do at the end of a 12-month period?
10 points x 100 shares= $1000 per month.
12 months x$1,000 per month= 12,000 or 12k per year!
Cynical? Let’s say Tina is wrong on EVERY trade. With a 1-point draw down for being wrong, she only loses $1,200 after a year. Okay, I’ll admit; it wasn’t the best story but focus on the illustration. You’re risking very little to make a lot!
What do you have to lose? Let’s continue the New Year forming good habits.
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Is it up from here for the major indexes? I am not sure, but find my analysis here.
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