Use Position Sizing To Navigate Volatility

2020-04-16 | Simpler Trading Team

Want insight into how Simpler Trading takes on this volatile market for profit?

Understand position sizing.

The basic idea is to establish your overall acceptable account risk, and not extend your positions in the market beyond that risk.

Position sizing takes on greater importance when markets spike and fall, then chop like crazy between these drastic shifts on a daily basis.

Sometimes the market just doesn’t make sense, like when unemployment numbers came out today. There were 5.25 million more job losses — 22 million in the last few weeks.

And the markets simply shrugged. All indexes finished positive on the day, despite the gloomy news.

Position sizing helps when market uncertainty is rampant, and trades turn up on the wrong side of expectations.

Here are key elements to consider:

  • New/conservative traders – Don’t risk more than 1 to 2% of an account per trade
  • Intermediate/conservative traders – Don’t risk more than 2.5% of an account per trade
  • Experienced/aggressive traders – Never allocate more than 5% of an account on any one trade
  • Don’t have more than 20% of your account at risk at any given time, which means sitting largely in cash (like we have throughout this pandemic crisis)
  • Don’t have more positions than you can realistically handle

Options expire tomorrow, so check your positions.

We Saw: markets undeterred by bad news — 

  • Job losses spiking to Depression Era levels
  • Oil still not finding a confirmed bottom
  • Pandemic tickers pushing for the lead in tech

We’re Watching: … for flash pullbacks and selloffs —

  • Expirations strategies and cash positions
  • Activity in TSLA, AMZN, NFLX, various tech
  • How does cratering ad revenue affect digital media giants GOOGL and FB?

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