Guidelines on position sizing for adding to existing stock position

Discussion in 'Risk Management' started by helpme_please, Feb 16, 2019.

  1. Dear elitetraders,

    I've been pondering over this question for some time. Please give me your experienced feedback.

    Suppose I want to establish a position in Apple stock. X amount is full position to put into Apple. I prefer to add to winning positions. Assume Apple is on the way up and I have 3 trades to make on the way up.

    Which scenario is your preference?

    Scenario 1
    - 1st trade -> 33.33% of X
    - 2nd trade -> 33.33% of X
    - 3rd trade -> 33.33% of X

    Scenario 2
    - 1st trade -> 50% of X
    - 2nd trade -> 30% of X
    - 3rd trade -> 20% of X

    Scenario 2
    - 1st trade -> 50% of X
    - 2nd trade -> 20% of X
    - 3rd trade -> 30% of X

    I chose scenario 1. The reasons are;
    - keep things simple
    - No confidence which particular trade will work. So, keep position size the same throughout.

    Scenario 2 and 3 are more risky because initial position is larger. Higher losses will result if the stock pick is bad.

    I plan to use the same method to accumulate all other stocks in the portfolio.

    How would elitetraders approach this position sizing problem? There is no right and wrong answer but I would like to hear your reasons behind your choice. I would also like to see if any of the experts here see anything wrong with my reasoning.

    Thank you.
    FP22 and cornerstone like this.
  2. I would only increase size when I sold high or bought low and the current price is still around high or low because Only thing you can control is the level of the risk. There is less point in adding additional positions when risk became higher. You need to consider risk-return relationship in your trading decision
    Last edited: Feb 16, 2019
    cornerstone likes this.
  3. It is all depend on how you enter the trade, if it is by a good and working strategy I think scenario 2 is better (if you use scenario 1 I'm guessing that you feel like taking a bet when you enter a trade rather feeling like making an investment).
    I usually enter trades where there is high liquidity (like it shows in the photo) and waiting for a pullback or reversal to add stocks.
  4. I like what you wrote.
    That's why, and if one focus only on the post intention, scenario 1 it's the logical way to act.
    victorycountry likes this.
  5. iccenuol



    As an example starting with 1 X Risk 2600, 2 X Risk 650, 4 X Risk 700 etc.

    The problem with the above example is that when the method stops working you lose everything, so taking something off the table at stages would be preferable.

    As you've already alluded to, individual traders will have their own preference.

    Good luck!
  6. comagnum


    On my stock trades I use up to 3 positions (33.3%). My aim is to get the first 2 positions in as close to the breakout area as possible. Each trade is treated independent of the others - if any single one is not acting right I exit right away.

    CIEN (daily) - triangle breakout, 3 positions @ 33% each
    * 2 positions (66.6%) exited - 47% gains
    * 1 (33.3%) position still running

    Rang the register already and still making profits from a portion of a position still acting right.
    Last edited: Feb 16, 2019