00:00:00
need to make decisions for yourself not mimic
other people making decision for you you want
00:00:05
to trade the biggest when the Market's good you
want to trade the smallest when the Market's bad
00:00:09
if you have a downward trending Equity curve
you haven't earned the right to size up keep
00:00:14
it simple and keep it consistent nail down the
basics before you can build that intuition to
00:00:19
become a little bit more creative in stage
three you can't mimic a stage three just
00:00:23
to be a stage three you have to earn your
way to it our goal with position management
00:00:28
once we're positioned in promising stock is
to capture the trend relevant to our time
00:00:33
frame position sizing really comes down to
experience at the end of the day so it I I
00:00:43
what I tend to see is a lot of people generalize
position sizing independent of the stage that
00:00:49
they're in if you're a stage one Trader uh we'll
get will have very specific guidelines coming up
00:00:55
you you can't put a position size at 20 25% you
haven't you don't have enough experience to do so
00:01:02
you haven't earned the right to even go that high
you don't really know what you're doing you don't
00:01:08
know your stats you have no idea what the hell
you're doing and if you don't know that stuff
00:01:13
there's nobody you know you don't have any right
to go 20 25 30% that stage three three Traders
00:01:20
do and that's kind of you know the the downside
of social media as well a lot of people seem to
00:01:26
think that you know if Trader X on uh you know is
doing this uh I need to do the same thing for me
00:01:34
to to match kind of you know to be him in away so
let's say if Dan zanger is putting up a position
00:01:42
size of 20 20 to 25 or 30% on a single name he's
been in the market for 35 plus years Ross has
00:01:49
been in the market for 35 plus years Mark mvini
has been in the market for 20 plus years these
00:01:55
Stan Weinstein has been in the market for 40 plus
years these people have earned the right through
00:02:02
experience to get them to those position sizes
and you do not have a right from year one to S
00:02:08
to be doing that to yourself because it magnifies
your emotion it allows you to make bad decisions
00:02:16
that's why you're a stage one and two Trader
because you're not taking the journey into the
00:02:20
con you know into account as to how those traders
that you follow got to that position size right
00:02:28
so keep that perspective keep that perspective in
mind if you see someone putting up a 25% 30% 40%
00:02:35
position size 50% I think is stupid but some
people do it it works for them uh your blowup
00:02:42
risk as stage one and two Traders you you don't
have the emotional experience you don't have the
00:02:47
mental experience you don't have any experience uh
at all to handle those situations whereas they do
00:02:52
they know how to handle it when things go bad you
don't know how to handle you know when things so
00:02:57
don't size up too fast that's the fourth point
that we we see on the slide the second aspect
00:03:01
to it is position size with momentum so if you're
stringing together a few wins in a row let's say
00:03:08
I put up a 5% position right and I have three
names 5% position each of them hit a 8% gain
00:03:17
and I see momentum and the markets communicating
back to me and saying this is a good environment
00:03:25
you know I'm go I'm rewarding you and I have a
a string of three wins that that I have and the
00:03:31
Market's telling me it's a good environment I can
then move my position size let's say from 5% to 8%
00:03:38
and see hey is the market still rewarding me right
keep the series of Trades keep the whole journey
00:03:43
of you're going to make 500 trades over a span
of I don't know three to four years depending on
00:03:49
what type of Traders you are right keep those in
mind instead of hey I need to size this up at 30%
00:03:54
because X person on this posted this and I follow
them and they're doing this they're way ahead of
00:04:01
what you where you are in your journey and you
need to make decisions for yourself not mimic
00:04:06
other people making decisions for you the second
is as you hit a wall as markets get choppy as
00:04:14
environment gets bad as the the May to September
run and September to now ended right the runs now
00:04:22
ended things are getting slapped lower you know
breaking the 50-day EF C these type of stocks
00:04:30
as they're coming back in if you're still placing
the same bullish position size right on you're
00:04:36
still going long with the same position size
that let's say you were in May at the start of
00:04:42
a trend and your draw down from your highs
is more than 5 to 10% already what are you
00:04:48
doing because you're working against the market
your your math is working against the market as
00:04:53
well you're not putting on tester you know test
positions you're putting on full positions to test
00:04:59
the market that's Insanity right at the end of the
day and a lot of Traders do this they don't look
00:05:05
at how much of a drw Down they have from the
top how much they have scaled back from their
00:05:10
highs they're they're not looking at the numbers
and they're just not aware and the momentum that
00:05:15
comes you know from that which is feedback from
the markets is consistently negative but they
00:05:20
refuse to reduce their position size because
they feel like hey it's going to work the next
00:05:25
one's going to work the next one's but if the
Market's saying you have four losses in a row
00:05:29
you have no right to go go to full position size
at that point in time you have to you know go from
00:05:36
your full position size to a eighth or a 16th of
of what you're trying to do um you know a 16th to
00:05:43
test the market and see if the waters are again
you know warm enough to swim at the end of the
00:05:48
day so that's the SE second aspect of position
sizing if you do it with momentum right keep the
00:05:54
bigger picture in play where you have three to
four to five trades you string together in a row
00:05:59
then you step up you know you have you you turn on
you know a switch and you say okay now my position
00:06:05
size goes from 5% to 7% or 5% to 8% but have some
mechanism so that you taking the staircase up to
00:06:14
position sizing not just going to 30 thing doesn't
work and you still put on 30 because you feel
00:06:20
like the Market's about to turn around right so uh
let's get into some some of the guidelines uh next
00:06:28
so trade your size when the market is cooperative
easier said than done but a series of Trades will
00:06:34
always give you the information and the market to
talk back to you uh trade the smallest you want to
00:06:40
be trading so these guidelines are this is what
you want to be doing we'll get into how you do
00:06:45
it uh in in the next couple of slides right you
want to trade the biggest when the Market's good
00:06:49
you want to trade the smallest when the Market's
bad you want to Stack Up Your probabilities there
00:06:53
are different ways you can have you know average
gain average loss break you know open risk Etc
00:07:00
but you want to Stack your probabilities by
counting the number of edges that a setup
00:07:05
has and then size according to that that's one way
that's how I do it um it takes time and experience
00:07:11
we already talked about that you got to you have
to pace yourself you have to go from one to two
00:07:16
two to three as um you know the different stages
and how you evolve as a Trader and the last bit
00:07:24
is yes you can size up but you have to earn that
size and it boils down to you can put put on big
00:07:30
position sizes and your Equity Curve will still
have relatively low volatility if you've built
00:07:38
up the experience to earn that right to get to
25 to 30% so now we're going to get into like
00:07:45
stage one you know as a stage one Trader if if
if if you're a stage one Trader right now some
00:07:52
general gu guidelines is just to how do you get
from stage one to two right we're just talking to
00:07:57
stage one to two right now if you're a stage
one Trader put a Max stoploss rule into play
00:08:04
just put that into you know put that rule have
that and that will curb your losses right that
00:08:11
will that will minimize what you're doing that's
just one step towards turning around your Equity
00:08:17
curve as stage one Traders the second is reduce
the number of positions I see a lot of stage one
00:08:23
Traders have massive you know portfolios of 15
names they have no idea what what they're doing
00:08:29
they have no idea how they could track this stuff
and they have really no you know they don't have
00:08:34
the stats to even you know t 10 names is a lot of
names get it less than 10 you could concentrate
00:08:41
on what's important at least you know again it
will Curb Your downward trending Equity curve
00:08:46
the second the third most important point is you
haven't earned the right to size up and that's
00:08:52
the reality of it if you have a downward trending
Equity curve you haven't earned the right to size
00:08:58
up keep it to 8 to 10% I don't care what anybody
sells you know else says size magnifies emotion
00:09:08
re yields poor decision making and you don't have
the experience on top you're going to lose money
00:09:15
in the market as stage one Traders so you need
to reduce that size get comfortable with that 8
00:09:20
to 10% do that over and over and over again until
you have a higher low on your Equity curve over
00:09:27
multiple Market cycles and you could proven you
know visually to yourself or you can just tag me
00:09:32
on Twitter and I'll say what's going on uh but
prove it to yourself with that 8 to 10% before
00:09:38
you go to that that next step right you have to
be comfortable at 8 to 10% know your numbers so
00:09:44
that you guys can really turn this uh ship around
from stage one Richard anything to add in terms
00:09:49
of General uh guidelines for stage one Traders
yeah I I think as we'll get into you know keep
00:09:56
it simple and keep it consistent nail down the
basics before you can build that intuition to
00:10:03
to to become a little bit more creative in
stage three as we'll get to awesome so the
00:10:09
only difference here stage one and stage two it's
kind of the same thing now you're a boom bust type
00:10:15
of Trader you know something's working and you
know that you give it back right so you have
00:10:21
a Max stop-loss Rule and you know that you need
to curb losses you figure that part out you know
00:10:27
that the number of positions that that you know
you have should be less than 10 and you can you
00:10:32
need to concentrate your portfolio to a certain
number of stocks so that you can manage those well
00:10:39
now at stage two I think you know you're in that
where you've moved away from 8 to 10 uh percent
00:10:45
and you've kind of migrated to 12 12 to 15 but
your your losses are still bigger than your gains
00:10:52
right so you're still trying to figure it out but
you've earned some right to go from 8 to 10 to 12
00:10:59
to 15 at the end of the day right so um that's
kind of the only difference I see Richard if
00:11:05
you want to add anything for stage two uh Traders
yes you're still you know downward trending Equity
00:11:10
curve but youve you have enough experience you
know most stage two Traders are around year five
00:11:16
six seven in the markets and they have a good feel
for what's going on they know what's profitable
00:11:22
but they're not serious enough because they're
not keeping the numbers right uh in terms of what
00:11:27
they're doing so anything to add no not really
just probably at this point you're starting to
00:11:33
think much more about focusing on the loss side
of the equation and keep those numbers in check
00:11:39
so uh you you'll be more aware of where you're
where you stand with that and really focusing on
00:11:44
trying to cap that downside still not not be what
not might be might not be working uh all the time
00:11:51
but um you're you're more focused on that side
of the equation and stage three Traders usually
00:11:59
if you if you look at some of the most successful
ones recently uh David you know David Ryan Stan
00:12:06
Weinstein Ross Mark uh any of these people that
have earned the right to position size higher
00:12:16
uh is that they're stage three they know how to
get out of bad situations and they know how to
00:12:23
uh work you know in high pressure situations even
though that they you know they size up quite a bit
00:12:29
still keep their losses pretty you know they're
looking at when they enter a stock they're looking
00:12:35
for directional movement and if it doesn't give in
Direction movement they get out right so they're
00:12:39
either the Market's anti you know doing what
they anticipated at the end of the day or they're
00:12:45
taking that loss and moving on to the next uh and
the you know they're they're concentrated they're
00:12:51
concentrated on five positions at 20% uh let's say
or uh you know four positions at 25% and they they
00:13:01
could pick the best stocks with the best potential
in the markets because they're stage three and
00:13:07
that's a very important p uh Point uh that you
know everybody should kind of pay attention to
00:13:13
you can't be a state you can't mimic a stage three
just to be a stage three you have to earn your way
00:13:20
to it and you you have to build the appropriate
experience for you to even get to this and we're
00:13:26
talking about people that have been in the markets
for 15 20 25 30 years that could put on 30 40 50%
00:13:34
positions and be perfectly fine because they know
how to manage their risk so with that we have an
00:13:40
example so this is from a spreadsheet that Anish
at uh the IBD Meetup that we did a while ago uh
00:13:47
put together so I took a screenshot of that and
we'll kind of go through um he did a you know
00:13:53
there's a whole video I think it's at uh an hour
or two hours where he just spent you know uh time
00:13:58
on position sizing I think that one's going to be
a good watch uh as well but I'll try to you know
00:14:04
go over this as to how realistic uh you this this
this example is fairly realistic um if you were to
00:14:11
keep you know tapped so this assumes that you know
you have a batting average of 45 and your position
00:14:19
size per trade is 25% your average gain is much
higher than your average loss that means what
00:14:25
does that mean you're kind of stage three right uh
you're about twice you know you're you're keeping
00:14:31
your losses very tight uh and minimal and let's
assume that you have a account size of 10,000 so
00:14:39
the way he you know this is broken down is that
your first trade here and your first four trades
00:14:44
are losses and the position that you're putting
on uh 1250 1250 and 1250 you test the market three
00:14:52
times and the market says nope nope and nope now
you're losing money you started with 10,000 and
00:14:58
you end up with with 9800 9870 in your total so
you reduce your position so the key here is as
00:15:06
the market gives you negative feedback right you
put on 12 this is dollars by the way 1,250 1,50
00:15:14
1250 now you reduce your position size because the
market says this is not a good environment it's
00:15:21
not a good environment it's not a good envir now
the next loss that you take with a lower position
00:15:26
size at which is 6% of your out basically uh you
still take the loss of 3% and you still give back
00:15:34
money and you keep that size low until you get
positive feedback right so once you get positive
00:15:41
feedback from the markets let's say you put on
that uh 6% position and the market says okay
00:15:48
I'm going to reward you the market environments
change things have turned around and you have a
00:15:54
10% you know gain you make progress you finally
make progress toward wordss break even and then
00:16:01
your next position you can kind of scale up right
now you're scaling up to that next level that next
00:16:07
switch or that next step whatever you want to call
it the market rewards you again now you're above
00:16:12
break even now you've earned the right from
trade five to trade seven to go back to the
00:16:18
position size that you started with and this is
you know uh it's always relative so you you went
00:16:25
from $625 to 937 being invested now you've gone
to 1250 as your position size and again the market
00:16:33
rewards you and says okay here's this is assuming
an average gain of 10% by the way and an average
00:16:38
loss at three so these are 3% losses 10% gains you
but the most important part here is trade five to
00:16:45
seven you've earned the right to go back up the
market environment remains good and now you're
00:16:51
making some progress as you step up your position
size right now you're at 2500 bucks of the 10,000
00:16:59
you the market says no here's a 3% loss dishes
you another 3% loss and dishes you a whole bunch
00:17:06
of losses in a row but what this is trying to
demonstrate is that your position sizing should
00:17:12
step down as the mark as the market becomes less
and less Cooperative so now at this point even
00:17:20
at trade 14 from trade 8 to trade 14 you've had a
string of losses if you kept this at 2500 all the
00:17:27
way through you would have lost a lot of money and
your draw down from your highs would have been a
00:17:33
lot more and your draw down from 10,000 which is
your equilibrium point would have been a lot more
00:17:38
as well so the fact that when the market tells
you hey you're wrong here's a 3% loss you take
00:17:45
it here's you're wrong here's a 3% loss you take
it and then you say okay I need to listen to the
00:17:49
market I need to reduce my position size because
if I keep going at this rate I I don't know how
00:17:54
many losses I'm going to have in a row but I
need to scale it back and once you scale it
00:17:58
back then you start over again right you okay the
market says 625 here's a 10% gain okay something's
00:18:05
changed the Market's saying you're you're good to
go again uh you know there's a 10% gain I'm going
00:18:11
back towards Break Even here's another 10% then
you start stepping it up and they're going to be
00:18:18
environments and we'll talk about this in webinar
six I believe when we take get into Market Cycles
00:18:24
this is essentially the market communicating bad
Market good Market bad Market good market right
00:18:31
and that's the market cycle at the end of the day
it's rewarding you right and you earn the right
00:18:38
to step up your position sizes from trade 15 to
let's say 23 this is really getting crazy right
00:18:45
you're not at 100% so this is not a realistic
example at this point you don't want to uh have
00:18:50
a you know one position $10,000 that's you know
you're putting your whole account into one but
00:18:57
it at that point you know you're you're making
progress because the market is cooperative but
00:19:01
you're stepping up your position size and what
happens at trade 24 is very realistic the large
00:19:07
gap down right you put on a position and you
get completely whacked and the market says you
00:19:14
know you need to slow down something's not right
or it could be a big gap down let's say you put
00:19:19
10,000 in it's not a 3% average loss and it's
a 8% average loss at that point not an average
00:19:26
loss but this loss you know for trade 24 could
be 8% and you lose a whole bunch more than you
00:19:33
anticipated but then having these stats in mind
and the series of Trades you will see relative
00:19:39
you know this trade set me back basically uh to
trade 21 or 22 if this was 8% or 9% gap down it
00:19:47
would have set me back to trade 20 but it gives
you a perspective of hey I'm still fine I'll take
00:19:52
this loss and I'll continue forward because I have
an idea what my numbers look like then you know so
00:19:59
the idea of this slide is you earn your right
to position size up as the market gets good from
00:20:05
trade 15 to trade 21 and you have to listen to the
market when you have string of losses together to
00:20:13
position size down because then you're testing
the market bit by bit right and if you work upon
00:20:20
this framework eventually as stage two Traders you
turn that situation around where your average even
00:20:27
if your average gain is 5% and the average gain is
4% you're going to come out on top because that's
00:20:33
mathematically uh you know what's happening but
at stage three they they really minimize their
00:20:40
losses because they're really good at taking
losses they're not sore losers they listen to
00:20:45
what the Market's saying they take it to the chin
and they really you know position size according
00:20:51
to what the mic uh the the market is really
telling any questions on that Richard or any
00:20:56
comments that you want to add as the how this kind
of works back and forth yeah I think this concept
00:21:02
Progressive exposure it's definitely a little bit
more advanced um so stage one stage two Traders
00:21:08
keep an eye out for that um Ry I wanted to see
before we move on to position management can you
00:21:13
touch on a little bit how you position size based
on the number of edges that you feel like a trade
00:21:18
has I think that's another important Point uh
to cover here yeah so let let's say um a good
00:21:25
example is that I remember that me and Ross both
grad was the Amazon uh 2020 uh coming out of the
00:21:33
covid correction right so Amazon had a couple of
things two two things actually so it had relative
00:21:41
strength in the markets which is an edge that we
look for and then it had a big bar which resulted
00:21:48
in you know big massive volume to the upside so it
had two things going for it the fact that the RS
00:21:54
line was making a new high before price and uh the
second was the fact that it was just exhibiting an
00:22:00
RS phase so it we me and Ross kind of piled up on
that name and we there was a pivot that we set and
00:22:08
the price moved above that pivot and we really
sized that up but that was based on the number
00:22:12
of edges so the market was pointing in the same
direction that's one that could be a Mark that
00:22:16
could be a market Edge the second uh is relative
strength that that that it was exhibiting so those
00:22:24
two facts combined that position for me became a
30% position instead of a 20% if it just had one
00:22:31
of the two quantitative factors that I look for
in terms of the number of edges that I have right
00:22:36
let's say it has um in a correction that name
also had 62% you know relative strength as well
00:22:44
so 62% of the time I know my stats so I banked on
that kind of you know to to make sure that I size
00:22:51
up on that name so that's that's how I kind of
operated was more edges that I see on a single
00:22:59
on a single name I position size those names
higher because my probability of seeing success
00:23:07
on those names is higher because multiple things
are aligning on that same name and if it's this
00:23:12
you know another name where only one of the
edges is present I position size less because
00:23:18
my probabilities don't tell me to go all the way
to let's say my Max position size is 30% so um I
00:23:25
I don't know if that makes sense maybe we need a
visual example and uh future webinars but that's
00:23:31
that's kind of how I go about it yeah great I
think we can move on to the last section here
00:23:36
today uh and I know a lot of people have questions
about this position management and sell rules
00:23:40
we'll touch on selling into strend selling into
weakness all of this but you know keep keep taking
00:23:45
it back to the kind of key points here our goal
with position management once we're positioned in
00:23:51
a promising stock is to capture the trend relevant
to our time frame a position Trader might look to
00:23:58
capture you know the trend above a rising 50-day
moving average or uh 65 EMA a more stage analysis
00:24:07
typed investor might look to capture the trend
above a rising 200 day moving average uh for
00:24:12
me I operate more baseo base above a rising 21
EMA that's my time frame focus on capturing the
00:24:19
trend that's relevant for the style that you've
adopted because all the risk parameters and all
00:24:25
that is going to be dependent on your style uh
and you want to stay true to that but you also
00:24:31
want to make sure that you let the stock work for
you within those constraints um and that means let
00:24:37
it Trend above a moving average experience natural
pullbacks all of that that's normal price action
00:24:43
that's going to happen and as the stock continues
to work and doesn't violate any uh sell rules you
00:24:49
want to make sure you give it room uh to actually
make progress for you um and shock markets give
00:24:54
it the benefit give it the benefit of the doubt
uh there may be intraday shakeouts below moving
00:25:00
averages that close above it uh doc you signed
in 2020 that that's one that taught me a lesson
00:25:05
there I got shaken out below the 21 EMA it rallied
and I had to buy it back at another entry point
00:25:11
um but in choppier markets you want to be very
restrictive and and tighten down on your risk
00:25:15
parameters and if the stock isn't acting right
don't really give it uh any room to to wiggle
00:25:21
around uh make sure that you're protecting
your your capital and gains at all costs so
00:25:29
he
