First of all congratulations. The number are fairly impressive. I have several questions which I'll ask one at a time. I'm wondering about position size. Do you have a maximum position size as a percentage of your portfolio? If you had a tight stop of 2% ($100 entry with a $98 stop) your position size would be 50% of your account. That seems excessive.
T
TraderMike
11 months
ago
I don't have a defined limit but alarm bells do go off in my head if the size would be more than 25% of my account size. So in a situation like that I'd take a smaller position.
In general I've found that having too tight a stop will cause me to have an outsized position. In general, if I see a support level (for a long position) that's closer than 1 ATR from my desired entry, I'll use 1 ATR as my stop. And most stocks I trade have at least a 3% ATR.
In practice, I usually have the opposite problem though. I'll want to trade something which has gotten pretty volatile and requires a wider stop than I'd prefer, causing my position to be 10% of my account size. The sweet spot for me is about 20 to 25%.
I usually try to stay off of margin for overnight holds and ideally I'd have no more than 5 stocks that I'm holding overnight. Let's use a $100,000 account as an example. I could have 10 $10K positions or 5 $20K positions. With 10 positions I could get stopped out of all 10 and take a 10% hit to my account. That same risk is only a 5% hit with the $20K positions. (Of course this assumes no catastrophic gaps)
This position sizing model is really powerful when purely day trading. In the US brokers give you 4x your equity as intraday buying power -- you can only hold 2x overnight. So a $100K account can control $400K of stock on an intraday basis. It allows you to put a whole lot of money to work while still only risking a small percentage of your account. That can really boost returns.
How many of the trades in 2023 were day trades? Is your performance more day trading than swing trading?
My next question was going to be about margin, more speficilally about margin and swing trading. I rarely day trade, If I do it's because my stop got hit the same day as I made my entry. Trying to keep my risk constant at 1% or in my case a bit less I find that as the market swings I might not have any entry signals at times and then have a bunch at the same time. If my stop is around 4% less than my entry, after 4 positions I have employed all the cash in my account.
If you get 6 signals do you take them all using margin or do you have some sort of filtering system to sort the signals so that you only take the top 4 signals. I can see this as being more of a challenge for you as I only have 3 or 4 signals I look at where you have many more.
That's a good question and I don't have an easy way to answer it. I may have to start tagging any intentional day trades as such in my journal for future reporting. But I'd say 95% of my trades are meant to be swing trades. They might become day trades because I got stopped out quickly or they gave me a huge profit really fast and I bailed out. The Holding Time graph from my journal will give you an idea of the ratio:
journal_holding_time.png87.5 KBAnd I counted 10 trades which have "intraday runner" in the name of the setup. But even with those I'm usually looking for a multi-day move.
I most likely would not take 6 signals in one day... If I did take enough trades to cause me to use significant margin I'd likely close a few positions to get me off of margin by the end of the day. I did exactly that yesterday, as I just wrote in my Trades of the Week post.
When I'm scanning at night I always start with my favorite setups -- Hot IPO Pullback, Calm After Storm & the Non-ADX Pullback. If I have a lot of potential trades after looking at those I won't bother with any other scans because I know I won't be able to take all the entries.
My process of choosing which setups to take isn't scientific. I try to choose stocks in different industries so that will usually eliminate some of the setups. But sometimes that goes wrong, like me taking TNK instead of ZIM a few days ago. 🤷
In theory, I could size down and take all the setups but then I'd be in the 5 positions vs 10 positions situation I wrote about in my previous comment here. I prefer to only have a max of about 5 positions held overnight.
This is probably the toughest question, how do you determine your exits. Stops are easy, just get out!! I try and let my winners run, especially strong movers. What I tend to run into is that stocks that run up fast tend to reverse fast. (Unless I sell them then they keep running up). :) I just gave back most of my gains in HUT. Got back close to breakeven and I was hesitant to hold it over the weekend. (Never know what Bitcoin is going to do).
I'm considering scaling out of my trades and also just closing the trade at a predetermined target. (So much for letting winners run) My trading plan calls for exiting when price breaks the trend line so I'm always leaving some money on the table.
Do you set a time limit on how long you hold a position. I have held COST since May but it hasn't given mea reason to sell yet. I'm considering using a percent drawdown as an exit signal. Something like 10%, that would have got me out of HUT with a nice profit. (It's so much easier to figure out what to do on the left hand side of the chart)
Selling is definitely more art than science for me. My default plan is:
place an initial stop loss
move the stop to break-even once I get 1R of profit.
Trail the stop as/if the stock keeps moving in my direction. The trail might be a certain number of ATRs from the high of the move (a laa Chandelier Exit) or I might get more aggressive depending on market conditions.
Sometimes I'll sell half my position if I get a quick 3 or 4R and the move seems like it will need to retrace.
But there are so many other reasons I might bail like:
The stock is stalled and I see a better setup I'd like to take with that cash
Earnings is coming up and I don't have enough of a profit cushion for my comfort
The market conditions have changed in a way that makes me want to get back to cash or reverse from bull to bear or vice versa.
I don't have a defined time limit but I certainly do cut some positions if they're not making progress after a while. It's one of those I'll know it when I see it kinda things. I think that was the case with some of the trades in that holding time graph. The ones that I held for more than 10 days but made less than 2R of profit... IMHO, that's not an effective use of capital.
