Trading % Allocation

Discussion in 'Strategy Development' started by Kendall, Mar 16, 2006.

  1. Kendall


    I think the flaw in my trading is my money management. I believe I allocate far too much into one stock. I understand position sizing but I always end up having my funds in 2-3 stocks at a time. I'll pick 1-2 stocks from a few sectors I like and swing trade them over a few weeks and intraday press them. Sometimes I hold margin overnight, but most of the time I only go out on margin intraday...I feel more comfortable trading a few stocks at a time, sometimes in pairs, because I think it's easier to follow them while working a finance job...

    What are folks thoughts on this subject? Do you think having 33% of your trading account in one stock is nuts? What's the Max % you'll go? I'm using stops and calculating my risk rewards, but perhaps I should be taking shots at 5 or 6 stocks at a time instead of 2 or 3...

    Why am I asking this? Well I got smoked by a SEMI and Biotech today while the rest of the market did well...I'm annoyed about that and the fact that I keep having these wild swings daily. I can get up 30% fairly quickly, but I can give back 10% almost as fast...

    Am I too agressive?
  2. Kendall


    The 30%/10% comment was more me talking about what I can usually get out of a good or bad run. A good run would be say, Oct-05 to jan-06 trading 2-3 stocks....A bad run would be like over the last couple weeks trying to figure out which Techs want to bottom or breakout...

    Should I be allocating funds into more stocks and then maybe I have a better shot at hitting runs like the one SNDK made? I haven't hit any doubles or >30% stocks in while that's bothering me... I want more out of this market...
  3. tireg


    how much exposure do you have to the market? how much of your entire portfolio are you risking per position?

    It can be ok to concentrate your efforts on a few good positions, as long as your risk stays low. I've often found that I'm usually in no more than 4-5 positions at a time, which allows me to put my money to work in the positions doing the best. But I also risk no more than 2% of my entire portfolio per new position/trade and limit my exposure t 6%. So if all of my positions got stopped out at once, the most I'd lose is 6% of the entire portfolio.
  4. MaxTrade = 6.5;
    Risk= (.01 * Ref(Equity(),-1)) * BuyPrice / (3 * ATR(10));
    RiskPS = Risk/Ref(Equity(),-1)*100;

    PositionSize = -Min(MaxTrade, RiskPS);//

    Risks no more than 1% of capital and limits allocation to 6.5%. I use 6.5% for safety and allocation principle, but you'll find that 3* ATR(10) by itself may allocate over 50% in one position, which isnt good in stocks. This info is for a long-term EOD Equity system.

    For EOD futures, just use :

    Risk= (.01 * Ref(Equity(),-1)) * BuyPrice / (3 * ATR(10));

    Note this is all Amibroker code, PositionSize is a negative number in the program.
  5. My read is that you pick the stocks you want to hold for Intermediate Term trading periods.

    All of your capital is spread somehow among a few (3 or so) stocks.

    Most people are not doing what you do.

    I am not able to pick stocks ever.

    I do not do the timing part either.

    I do as you do for dividing my capital up among stocks with some differences. The number of threads of capital I have is dictated by market limitations. Basically I have captal chunks that are invested according to the time it takes to complete a cycle. My cycle is about 5 days so I have 5 chunks basically. 20% per chunk.

    Because of market limitations I can't put all the capital in one chunk in one stock. I am forced to have more that one stock to get the money in a chunk in the market.

    All of this is not a common approach either and comparing what you do with what I do is not very important for you probably.

    The market picks my stocks and the market dictates my timing. This is because I am just oriented to making money.

    I feel that I am at the least risk if the market is running the show basically.

    Currently, the market picks that come to me are really getting the job done. It is like one of your cycles is long enough to hold 12 of the cycles the market times for me. I do not expect to make, per cycle, what you do but it is turning out to be that way this year (late 2005 and 2006); I am making per my turn what you are making per your turn.

    I think you are in a pretty risky place doing your own picking in any sectors you are choosing. Apparently, you let your holdings ride through some ups and downs too. Like today was one where your positions did not improve. I do not stay in something whenever the market tells me it is not making money.
  6. cnms2


    It depends on your trading approach / method / system.

    To correctly asses your allocation's aggressiveness you have to know / determine your percentage of wining trades, and your average win and average loss. With these you calculate your Kelly ratio, then you decide your risk and position sizing to fit a probability and magnitude of drawdowns that you feel comfortable with.