I am trying to determine what I should use for a metric in determining when to increase my share size when trading SPY. I have been daytrading full time since 3/15/2003. Last month was my first profitable month trading 100 shrs of SPY (+$62.00). So far this month I am at about Breakeven (+$2.00). I have been fairly consistent as of late and my drawdowns are small relative to my share size. My original plan was to increase to 1000 shares once I make $50 a week for 2 weeks in a row. However, after reading many posts regarding performance, averaging $50 a week on 100 shrs of SPY might be to lofty a goal for a newbie such as myself. I was also considering trading 500 shrs of SPY if I end this month in the black. My logic is that I could be making a little bit of money while still learning. (ie.. 1000 shrs last month would have been more than $620.00 because of cheaper commission. That covers almost half of my living expenses.) I have about 9 more months of savings left so it is not imperative that I immediately start covering my costs with trading. Thanks in advance, fan27
Nice work fan"! I am going to presume you have a method that you consistently follow. Because in my opinion, what separates a newbie from an oldbie is discipline. Simply, I believe that an oldbie gets to be an oldbie because he has more discipline. This of course presumes a winning method also. I always suggest that when you are learning, do not focus at all on the dollars made, but rather the points captured. This is why I suggest 100 shares. Trading 100 shares will not make a difference in anything except for your experience, win or lose. The money made or lost from 100 shares is not important. Increase your size when you are confident that you can consistently capture points. Unless you are in illiquid stocks, the market doesn't know whether you are trading 100 shares or 1000 shares. So focus on capturing points, and increase your size when you are confident that you can capture points consistently. But I would suggest only progressing to 200 shares next, because 500 or 1000 shares obviously increases drawdown by 5x and 10x respectively, and that can be hard on a newbie... I know it is hard on oldbies. One additional thought, the market activity the last several weeks has been rangebound. Some methods work well in that environment only, some work well in a trending environment only. You now your method works well in a rangebound environment, try to determine if it will work well in a trending environment.
Hello I will comment on 1 of your points. Don't read posts on a public board and accept the words they contain as reality. If you accept a perceived long-term average in the industry (or just this forum anyway!) as your limit then you are selling yourself short. (Pardon the pun!) I have screwed up my own trading this way in the past. when I started I achieved some incredible returns. After spending time on forums I considered my results luck and actually quit. A few months later I had another go - same result. Must have been lucky so I quit again... I've now started on the es. Same result again. Now I'm starting to think I can trade! Basically I'm trying to suggest that accepting the long-term averages you read about here may hinder your performance. Best of luck. Sorry if I digressed too far from the main point of your post.
Two great books on position sizing: Van Tharpe etal: Financial Freedom Through Electronic Daytrading Jones: The Trading Game I'd look at position sizing based on $ risked rather than fixed share size. When I made the transisition, it took a lot of the stress off because I stopped avoiding trades during more volatile times - just played fewer shares. Van Tharpe advocates fixed % risks (ie - 1% or some other % of your acct on each trade) based on distance from stop placement vs. entry. Also, I personally really like fixed ratio position sizing advocated by Ryan Jones. It's written more for futures traders, but can be applied to stocks. It goes beyond a fixed % mindset and reduces risk as strategies mature and accumulate earnings.
In his book "Come into my trading room" Alexander Elder recommends doubling size when profitable for at least two weeks. Scale back after one losing week. I think this is pretty good advice. Do not start to think of what you are missing and how much you could have made if... Just focus on your method, and double only if profitable. I would never go from 100 to 1000 shares. The increase is just to much, it will probably change your results at once. Elder compares it to walking across a table. Anybody would do that for 10 dollars. But put that same table from one skyscraper to the next and you would be hard pressed to find anybody to do THE SAME THING for 1000 dollars. Ergo: Trading is mainly psychological, take your time scaling up!
Do not underestimate the mental challenge of trading increased size. Going from 100 to 1000 shares of SPY in one jump, I would bet a lot that a new trader will not be able to follow their system exactly the same way. It would help if you didn't look at your p/l at all and didn't let money factor into things. Your goal should always be to trade well, the money will follow as a consequence of that. I'd only increase a couple hundred shares at a time and spend several weeks at each level.
Swish I think I received a free audio tape of that once. I really like it too. It makes a lot of sense and treats the p/l as a more dynamic entity than fixed percentge. His goal was to beat Larry Williams record. I wonder if he ever did.
I don't think he did - my impression he's not a stellar trader... But as a money management theorist, I think he's pretty top notch!!!
Don't even consider 1000 shares try 200 or 300. You don't want to wack your confidence on a bigger loss. You said you have money for 9 months so a few losses on size might shorten that time.
Thanks for the responses so far. I think I will start trading 200 shrs next week and hopefully slowly work my way up to 2000 shrs within the next 3-6 months. During that time I also hope to adapt my method to take into account the wider tick in ES so I can trade that instead of SPY. I currently trade breakouts out of consolidation patterns within the context of trends on the 1 min and 5 min charts and use a trailing stop. I take my signals from ES. If I were to switch from trading SPY to ES, my results so far indicate that I would be giving up about .25-.50 ES points per trade given the lag and tick deferential of SPY. thanks