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.

http://finviz.com/screener.ashx?v=351&f=sh_avgvol_o500,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

 

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