Ask Colin

I recently received your videotapes on how to design a trading plan and I thoroughly enjoyed watching your presentation. I'm having a little bit of a problem trying to work out my position size. Could you please advice me on a appropriate strategy to manage my risk as I have only a total of $15,000.00 trading capital. What would be the maximum diversified positions I could hold? If I use the 6% maximum rule I can only purchase a small parcel of shares and with the 2% minimum position building, and the cost of slippage it would not be worth trading.

In my experience, you need about $50,000 as a minimum to trade with reasonable risk. Since you have less than that, you will need to take higher risk and you will not be able to achieve good diversification.

The way I think you have to deal with this is to recognise the reality and try to get through to a larger capital without losing too heavily. What will help is if you are very selective in the trades you take and try to restrict yourself to trades that have relatively close stop-losses based on the technical analysis principles I taught you. Often they will be my second entry situation.

This will help you keep your risk reasonably small. Until you get to at least $50,000, I would not worry too much about diversification other than to try to not put more than 20% of your capital into any one trade (i.e. 5 positions in total).