trade size as % of daily volume

Discussion in 'Trading' started by gemini_315, Oct 2, 2001.

  1. gemini_315

    gemini_315 Guest

    I don't trade stocks but hope to soon. My question to the experienced stock traders out there is: What would be the maximum position size in shares of a stock that one should hold in a trade in order to ensure that one could get out of the position with minimal slippage. I would imagine this would be some percentage of the daily volume that would be deemed to be safe.

    I was recently listening to a presentation where the presenter claimed to have positions of 50,000 shares that he was able to get out of without any liquidity issues. Unfortunately, I did not get any further details.
     
  2. It depends on the circumstances. I probably take the largest positions in the most illiquid stocks of anyone on this board. I usually trade stuff that trades under 500k, and usually under 200k daily. I've been able to buy/sell as much as 20% of the daily volume on a stock and not move it "too much". You really have to quantify what you consider slippage to be. If i can sell 20k of something, and I only move the stock 30c within a 3 hour period, and complete my order, then I'm content. You have to also understand that you can't just send in a 30k market order and hope to get filled on the bid. You'll get raped. I almost never trade nasdaq, so I'll leave that part to someone else (though I have taken nas positions in stuff that only trades 10-30k shares a day and had 15k of it. It just takes a few days to unload. It depends on how fast you want to nuke the position on the nyse at least. Ideally, you should be selling into buying pressure, and buying into selling pressure. I fade overextended moves mainly. I usually am buying my first shares about 40c off a percieved bottom. I want to get about 70% of my position on before the stock reverses. This gets me in at the most ideal prices. You can use limit orders exclusively if you want. Once the bottom has been put in, I like to use some market orders to try and nudge it a bit..... See if there are more sellers or not. Since I am gonna sell into the buying pressure once the bottom is obvious, I just offer some out (really small) on the offer every nickle up at about a quarter below where i think the top is. Hopefully I can get out of 3-5k 200-500 shares at a time. Then I wait for bids. You have to sell when you can, not when you have to. Usually, if the stock is running away, somone will get desperate and just show 5-20k size bids.... Sometimes it's the specialist trying to push the stock higher to sell. The point is that you bitchslap the first bid you see. don't wait for it to move up or anything else... The only time I don't smack it immediately is when I don't have much left and I'm looking for better prices instead of liquidity. In that case, get in front of a large bid by a dime. Maybe you can get him to get a nickle in front of you, then hit him for the 10k. You just risked 1k shares to make an extra 1.5k. I think this is more detailed than you were hoping for. If you're trying to move 50k shares like your example in ge, I assume you can just send em in 10k at a time market style. I would think that 50k shares would move the stocka dime. There's tons of liquidity. The final thing to remember is to target liquidity. There's size on the halves. If you have 20k to sell and it's dropping rapidly, you can be a 3k offer at .15, and there's a k bid at .1, just offer 15k at the even. There's probably something there, and you'll get it before the specialist can hit it. Maybe you'll get lucky and have some bid leaners at .01-.06
     
  3. Praetorian2,
    Dont you know your breaking every rule in the book? Calling bottoms, averaging down. Your setting a bad example!:D
     
  4. mandatory note- Don't follow me... I'm a freak, but I've been doing this for a while, and have gotten quite good at it.
     
  5. Magna

    Magna Administrator

    gemini,

    What would be the maximum position size in shares of a stock that one should hold in a trade in order to ensure that one could get out of the position with minimal slippage.

    As was mentioned, alot of that would depend on your time frame, how quickly you need to get out, do you want to get out all at once or pare out, what is minimal slippage to you, are you day or swing trading, etc. Frankly, that's a lot of questions that you won't need to answer anytime soon since you haven't begun trading yet. But down the road the answers to those will determine you actions and things will become more and more obvious.

    As an aside I recommend you carefully read praetorian2's first post on this thread. Not so much for the trading style as it's definitely not for beginners, but because there's alot of subtlety and experience talking in that paragraph, and you might want to reflect back on it after you've been trading for a while.
     
  6. gemini_315

    gemini_315 Guest

    Magna,

    I currently do trade, although I do not trade stocks. My trading time frame would be day or swing trades. I would need to get out of my entire position at once if that were possible(if that is not possible, I may need to scale out, but I prefer to just get out of my entire position when I need to).

    Praetorian,

    I am very impressed with your grasp of the animal you are dealing with. I would not however want to engage at that level of sophistication. My needs are really simple. I just need to get out when I need to get out. I am trying to figure out an optimal maximum share size (which I imagine would be related to a stocks daily volume), that would enable me to dump an entire position with as little slippage as possible. If you could share some light on what slippage one could expect with say dumping a certain maximum amount of shares in a stock with a certain amount of daily volume at a certain time of day..... I would really appreciate it.

    Thanks to all.
     
  7. Ok. I think that the ability to get out supersceedes (sp) the price level requirements.... IN that vein, I use market orders almost exclusively in nyse (occasionally island orders on something like aol). Basically, on anything that trades over 500k shares, you can move 1k of stock up or down a dime with a market order, unless you have some crazy circumstances... Anything that trades over a mil a day, you can move 2k with market, and over 3 mil, you can probably move 5k at market. Think of it this way. I was able to cover 3500 ge yesterday 15c off the bottom after the first fed move down.... Keep in mind that it was fed day (which makes things looney) anyway, I got my fill 4c above the last print, and my fill came back to me in about 15 seconds. About 90 seconds later it was 40c higher. I don't know what type of slippage you're looking for, but anything under a dime is kinda expected.... unless you're one of those freaks who intends to scalp 3.9c using island or something.
     
  8. Magna

    Magna Administrator

    gemini,

    I would need to get out of my entire position at once if that were possible

    I can only talk about Nas as that's what I trade. Best to look for thick stocks, by that I mean many close layers of pricing on L2. Be careful in assuming that relatively high vol stocks are all thick, as they're definitely not. On a run some will move .35-.50 in a heartbeat.

    As a rough, very rough guide something like .2% (.002) of total vol should be doable, fairly quickly. For instance, total vol 500K = 1K shares, etc. But as I said, that's very rough and depends more on how that particular stock trades.
     
  9. I think Tony Oz did a great job in his new book on position sizing. We got the calculator in his live trading seminar in August. I believe it says here http://store.yahoo.com/marketwizard/index.html that you get the calculator for free. The attachment has a picture of the calculator. I entered some numbers into it, so you can see the answers.

    Per Tony's lecture, the lowest number on the right (in blue) is the maximum position you can take. However, he also told us that you may double the bottom two numbers if the result is still lower than the top two numbers.

    I hope this post is clear, I have fever and can barely see.

    Bill
     
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  10. gemini_315

    gemini_315 Guest

    So it looks like a position of 0.2% of daily volume should be easier to get out of liquidity wise. If for some reason I have a position of 0.8% of daily volume in a particular stock and I am long at $30 with a profit target of $35, what would you recommend be the best way to get out of the position. Should I sell blocks of 0.2% at a time when I get to my profit target, or near there, without worrying about impacting the price of the stock too much. If I was to dump the entire 0.8% once I reached my profit target, what could I expect the slippage to be approximately and how long could I expect to be filled. I would imagine time of day would also play an important role here.

    Thanks for the great posts all.
     
    #10     Oct 4, 2001