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Market Lab Report
What position sizing strategies do you guys use or recommend?
Q: What position sizing strategies do you guys use or recommend? For a 100K account, what would be the range of position size and the stop loss professional investors like you use? I am always afraid taking larger positions and would love to learn how to size positions and manage for low risk and high profitability.

A: It comes down to trading personality. Some such as Bill O'Neil or Lee Freestone preferred only a few positions so he could watch them closely. I preferred having typically 12-16 positions. Bill initially didnt believe good returns could result because he considered this too many positions, but in a good bull market, one can spread the risk without hampering upside returns. That said, it depends on the market. In crypto in June 2017, this was the mini-top. Only one crypto was bucking the trend, Neo, which was called Antshares in those days. Despite alt coins losing typically 1/3 to 1/2 of their value from June over the next several weeks, Neo continued to forge higher. I went all in knowing that since crypto does not ever close but trades 24/7, major gap ups or gap downs are nearly non-existent for quality cryptos. As Neo shot higher in the ensuing weeks, I then spread part of the profits into other alts which started to offer logical entry points.

With stocks which can lose 50-75% overnight known as the gap down risk, I intentionally kept my position sizing to a maximum of 25% of my portfolio, where eight positions on full margin would be the target. If a stock doubled, I would not sell it, but know it had become an overweighted component but with a huge profit cushion which was okay. In practice, since I would dynamically reduce the position size in the slower horses and use the capital to buy faster horses, I would typically end up with 12-16 positions as a bull market unfolded.

That said, each must find what works for their trading personality when it comes to position sizing.  
First published: 27 Dec 2021
Last updated: 27 Dec 2021