Position Size
A lot of traders are probably blowing up their accounts right now by not adjusting to the
volatility correctly. When I say adjusting to volatility, the key is to decrease position size. When stocks start to swing 20-30 dollars in one day, even 100 shares can be quite damaging to performance (depending on your level of risk). A trader who continues to trade with their normal position size on each trade (ie, 1000-2000 shares) will probably be experiencing gargantuan swings in portfolio value, leading to emotional trading and possibly major disappointment. I've been initiating positions at approximately 1/5th my usual size. In addition, it is a very good idea to never take a full position from the outset. I recommend splitting up your buys/sells into 3-4 entries. Even if you complete all your trades within 10 minutes, it is still a good practice. In fact, it's good to buy and support your buy by placing another order with a bid slightly below your purchase price. For example, if I buy 100 shares of BIDU at 281.5, I'll follow it up with another 100 share buy order at 281, and so on (this is assuming my final position amount is 400 shares for example). Even if the stock starts moving higher, you can always continue to stay on the bid, thereby supporting your position, and conserving your powder. If you're on the right side of the trade, it should go a lot further than you imagine. And I can't stress how important it is to respect your stop orders during times like these.
Watch Lists
I also think it's a good idea to organize your stock watch lists very carefully. Always keep stocks divided by sectors (ie Solar, Materials, Retail, Financials, etc). In addition, have your watchlist clearly defined on a daily basis as to which sectors/stocks you are bullish on (want to buy), and which you are bearish (want to short). I would also encourage the creation of a "buy" list and a "sell" list on a daily basis. Organization is absolutely key in being able to have a clear view of how the market is behaving every day.
Subscribe to:
Post Comments (Atom)
1 comment:
Robinhoodtrader,
Thanks for this great advice. This is a a valuable lesson I am learning painfully during this volatile market. I was a big postion trade and had mad elot of money last year. But it was just disastrous this month. I am trying to make it better though.
Post a Comment