Position Sizing For Optimal Results by Bo Yoder
Carefully choosing position sizes can lead to consistent returns.
Position sizing is a facet of trading that is often misunderstood and has the potential to dramatically affect your returns. After all the indicators have indicated, the support or resistance levels have been established, and the signal to buy or sell has flashed, one last question remains: How many shares? A rule of thumb is to risk no more than 5% of your
account on any single trade. For intraday traders, between 1% and 2% of cash equity is often recommended. For a trader with a $25,000 account, 1% would be $250, while 5% equals $1,250. Many traders use these guidelines to pick a share size with which they are comfortable. Consistently taking 200, 500, or 1,000 shares gives traders a feeling of comfort; yet
with certain trading styles, this can be an insidiously destructive way to trade.