Stocks and Position Sizing

The more I learn about stocks, the more I am realizing entries and signals are not as important as position sizing and exit strategy.

My current strategy is based on 50 day moving average pullbacks. If the price closes above the 50 day moving average, then I take a position. I find this is usually a good way to catch a trend at a discount price.

Since I am dealing with a small trading account while I experiment, I have set up stocks under $20 on my screener. You can adjust this if you need to.,sh_price_u20,ta_sma200_sb50,ta_sma50_pca,targetprice_above&ft=3&o=price

I am position sizing based on risking 1% of my portfolio and setting my stop loss based on ATR. I am still experimenting with this number, but lately I have been using between (2.5-3.5x) ATR (14) or ATR (21).

Here are two videos that show just how important position sizing is.

The following book should be a required reading for every aspiring trader.

Trade Your Way to Financial Freedom (Business Books) 2nd Edition by Van K. Tharp


My experience trading stocks so far..

During the summer of 2015, I saw an ad for a new app called Acorns on Facebook. The Acorns investing app works by encouraging you to invest your spare change. Using a system they call “round-ups,” Acorns monitors your bank account and automatically invests the change from your daily purchases. I started to research and even deposited a little money to see what could happen. I quickly found out, that Acorns is more for the long term.

Next, I discovered penny stocks and Robinhood. I bought a few hundred shares of a few stocks that were around 10 cents. I started to use stock profit calculators dreaming of what could happen if my investment went up to a few dollars.

A few weeks of playing with these stocks, I quickly lost some money and got my first lesson about bagholding.

I started to learn about technical analysis and different trading strategies on various websites. I eventually made the switch to a TD Ameritrade account thinking their trading platform and tools were better than Robinhood.

Within a few months, I discovered Stocktwits and found quite a few scammers selling courses and subscriptions to their trading chat rooms. I foolishly subscribed to a few of these thinking it would help me do better with stocks.

About 5 months of trading I started with $5500 of savings and lost more than half of it. I lost over $1000 in commissions alone from TD Ameritrade because I was trading quite a bit.

I ended up giving up on stocks for a bit convincing myself that the people on the other side of these trades are either very smart people who study the markets 24/7 or computers that have much faster executions than me.

In 2016, I started up my Robinhood account again and tried a few trend following strategies after reading a few books and had mixed results. I think I didn’t do as well as I hoped because I was looking for gains in a short timeframe and trend following is a longer term strategy.

Now in mid 2017, I am back to trading again with Robinhood. This time I am trading with $500 since I am still playing around with different strategies.

Here are rules I am following so far and I’m sure these will change as I fine tune in my latest strategy.

  1. Avoid Stocktwits and any other social media regarding stocks.
  2. Avoid Stock Picking Services and Gurus.
  3. Do not trade and stocks that are not on NYSE or NASDAQ.
  4. Do not trade stocks that have less than 500,000 average daily volume.
  5. Do not risk more than 1% of my portfolio on any trade given my account size.
  6. Position size using 2x-4x ATR (Average True Range).
  7. Buy stocks only during the last hour of the trading day.
  8. Add a stop loss on every order.
  9. Trail stops every time a new high of day is made.
  10. Do not exit any trade until stopped out.


I have discovered so far that the stock market is random and you have to take what it gives you. I am convinced if I can keep my losses small and let my gains run, I will be profitable in the long run. I will post more on the subject in the future.

A few books I have read along the way.

  1. How I Made $2,000,000 in the Stock Market by Nicholas Darvas
  2. The New Trading for a Living: Psychology, Discipline, Trading Tools and Systems, Risk Control, Trade Management by Alexander Elder
  3. The Honest Guide to Stock Trading: Make Market-Beating Returns. Achieve Long-Term Wealth by Llewelyn James
  4. Technical Analysis For Dummies by Barbara Rockefeller


Also, if you are thinking about signing up with a guru, I highly recommend you check this site out first to help you avoid scammers: .