Ask Colin

POSITION SIZE

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  1. Why do you use total capital for your position sizing calculation?
  2. Please explain position sizing for me?
  3. I have too many stocks in my portfolio because I am afraid to put toomuch in one stock. Is this OK?
  4. With $50,000 capital, when would it not be feasible to buy a share costing $35.00?
  5. Are there times when we have to risk more than 2%?
  6. My stop at 2% of capital is $2000, which is 66% of the investment. Isn't this too high?
  7. How much capital do you allocate to any one stock if your market exposure strategy setting is to have only 50% of your capital invested in the market?
  8. How do you adjust existing positions if you add substantial amounts of capital to your portfolio?
  9. In early 2004 you increased your portfolio holdings significantly. Does this indicate increased confidence in the market?
  10. In your seminar you proposed an initial entry into the market in the third phase of a bear market at 10% of funds. In Shares Charting No 2, you said 20%. Why?
  11. With a $370k portfolio, I risk 2% in calculating position size with the stop 8% below my entry. Why is the dollar value of the position always the same?
  12. Is there a practical limit to the number of stocks one should buy?
  13. Once a stock moves into profit and makes a new high in the trend, so that the protect profit stop can be raised, is it appropriate to add to the position?
  14. If borrowed funds are used to trade, should position size be based on equity only, or total funds available to trade?
  15. How much of my trading capital should I commit to one stock?
  16. If I am only trading 40% of my capital, should my position size be calculated on my total capital, or only on 40% of it?
  17. Because you limit your position size to 6% of your equity does that mean you are prevented from buying high priced stocks like the banks or CSL or Cochlear. If you did buy a high priced stock the lack of leverage would take away from the attractiveness of the deal if you were to limit it to 6% of your equity.
  18. 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.
  19. Please explain standard position sizing or money management.
  20. How do you feel about setting very tight initial stops?
  21. In your seminar, I liked the idea of splitting the entry points into a trade as it feels less risky than putting the whole 6% of capital on the first trade which has been my approach up till now. I was wondering if the increased cost of brokerage makes it too costly, although I guess by the time the 2nd and 3rd trade have been made the upward trend of the share will have been confirmed which probably off-sets the extra brokerage?
  22. You refer to an initial position size of 6%.... with minimum entry of 2%. You recommend selling half if the trade is successful and reaches 12% of capital to maintain balance and diversification. In some examples you refer to further purchases as it takes out the top in each swing... Do you mean that you keep buying until your holding equals 6% of capital? Would you ever consider exceeding the initial 6%?