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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: beckya who wrote (17430)	9/12/2005 6:25:01 AM
From: Eric P	Read Replies (1) \| Respond to of 18137

What are your views on setting position size and risk? Becky, Risk is the most important of the two, as a trader's most basic responsibility is to not 'blow up' and end his/her career. I try to ensure that if I get a really, really bad trade, that it loses no more than 1% of equity. My typically losing trade may be closer to 0.05% or less. The key to risk management, IMO, is to find a strategy that gives you an edge (even a small edge), then make a very large number of trades, each with a very small risk. In this way, you let the law of large numbers to work in your favor, much like the operators of a casino. Position size must be influenced by two factors: risk management and liquidity. Risk was already discussed above. Liquidity is important since you can ruin the trading performance of an otherwise successful system by simply trading much size and creating too much slippage. If you are trading a stock like Intel, this will not be a problem. However, assume you are trading a position size of 1000 shares per order, in a smaller stock that only has a daily trading volume of 50,000 shares. In this case, each buy/sell that your system generate could push the stock up or down by 5-10 cents. This alone can easily turn your system into a consistent loser, while the same system might be consistently profitable if trading only 100-200 shares at a time. In short, you must take what the market gives you, in terms of liquidity, and don't push too much size on too small of a stock. -Eric