After you have learned most or all of the information in the preceding chapters (which may very well take years of trading experience to master), you still need to have guidelines to managing the portfolio and the position sizes. It’s my strong belief and experience of observation and discussions with many traders over the years that even with all the trading prowess and skills a trader might have gleaned or accumulated over a period of time, it’s still very important to be able to manage the funds and positions sizes to reduce risk, accumulate a larger capital position, and, most important, protect your capital (my number one rule in trading!).
■ Position Sizing
There are many opinions on how to manage your money when trading and how many positions you should own at any one time. My personal belief from many years of trial and error is that position size certainly depends on portfolio dollar size. My feeling is that leverage is a key in day and shorter-term trading and that smaller numbers of positions, say three to five or so, probably no more than a half-dozen positions, not only is more manageable but enables larger-size individual positions creating leverage and the ability to scale out of portions of positions when price objectives are met without eliminating the entire position and possibly missing the “bigger move” over a longer time frame.
One of the biggest complaints I hear from traders is “I sold it too soon and missed ...