How Many Positions to Hold -- By: Bill Kraft
Copyright 2008, Makin' Hay, Inc., All Rights Reserved
Bill Kraft
Editor |
Last weekend, in response to a subscriber's question, I discussed
the issue of how much money a trader needs in a trading account. As is
often the case with trading, the answer is "it depends" on the
individual and his or her goals, needs, risk tolerance, time available
to trade, and so on. That same subscriber had also asked how many
positions to hold in order to have a good mix of issues. Again, the
answer is completely dependent upon the individual.
One of the most important, if not the most important, factors to
examine in answering how many positions a trader should have is how many
can that individual manage. I often have as many as 30 positions
working at one time, but I certainly would not recommend that high a
number for the vast majority of traders. Trading is what I do, so I am
devoting a significant amount of my time to monitoring, entering,
exiting, and adjusting positions. Clearly, that is a much different
scenario from someone who can only look at the markets on the weekend or
at night. I once had a student who traded for a living and only had one
position at a time. I have lost contact with her, but the last I had
heard, she was a successful trader.
Many factors influence how many positions a trader can manage at
one time. They include the trader's level of knowledge, the strategies
he is employing, and the time he can devote to his trading. Obviously,
in terms of monitoring, it is one thing to buy a stock and place a
trailing stop and quite another to trade near the money naked puts which
might require relatively quick action to adjust, close, or roll the
position. In Appendix D of my book, "Trade Your Way to Wealth" , I set
out 15 strategies and compare things like the level of monitoring
required for each as well as things like relative risk, capital
required, time frame, desired market direction, and expected time frame.
Depending upon capital, a true buy and hold investor who has a full
time job could hold a fairly large number of positions while that same
person who pursued a different strategy like swing trading long options
would probably hold a smaller number of positions. As I have written in
the past, these are considerations the individual investor should
address when creating his individual personal business plan. The
conclusions may well differ for each trader, but it is an important
decision. Trying to manage too many positions can result in missing
something on one or another -- believe me, I speak from experience. In
my early years of trading, I was so excited about what I was doing that
I did make the mistake of having more positions than I could effectively
track and I burned myself. That episode taught me to limit the
positions to a number I can manage and I have been faithful to the
concept ever since.
In the coaching sessions, I sometimes encounter students who have
not considered a limitation on the number of positions and find it
difficult to keep up with themselves. I try to suggest that they
establish a comfort zone both in terms of risk and in terms of
manageability. It is my personal belief that traders should confine
themselves to strategies and amounts of risk that permit them to sleep
comfortably at night. Inability to manage positions whether it be from
lack of knowledge, lack of experience, or just too many positions to
manage does not lead to relaxed trading in my estimation and that, in
turn, can lead to emotional and bad trading decisions that we all want
to avoid.
Good Trading!
Bill Kraft
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Option Trader -- by Bill Kraft
Our Option Trading Service is for conservative traders that understand leverage principles and enjoy the challenge of options trading. We focus on powerful option trading strategies that place volatility and momentum in your favor. And we pride ourselves on always minimizing our losses!
The Option Trader service utilizes standard trading in Puts and Calls as well as strategies using Leaps, Straddles, Credit Spreads, Calendar Spreads, and Naked Puts. But no matter how sophisticated a strategy may be, we ALWAYS know our downside potential on every trade.
Here's a look at a trade Bill is currently working on:
SPDRs (SPY)
With the markets continuing in bearish territory, I am
looking at credit spreads on SPY. One of the nice things about trading
options on SPY is that the strike prices are only $1 apart. As of an
hour before Friday close, the Aug 130/131 bearish call spread could be
opened for about a 28 cent a share credit which would provide a
potential 39% return in 5 weeks if no adjustments were made and SPY
stayed below 130.
Good Trading!
Bill Kraft
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Trend Trader -- by Bill Kraft
Trend trading as we try to practice it is a form of momentum trading. We prefer to try to capture profit out of the middle of the trend rather than try to catch reversal at bottoms and tops.
Here's a look at a trade Bill is currently working on:
UltraShort QQQ ProShares (QID)
If the Q's (QQQQ) can't hold above the $44 mark, I will
consider opening a position in QID which moves opposite the direction of
QQQQ and offers the potential to profit if the Q's continue down.
Good Trading!
Bill Kraft
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$10 Trader -- by Bill Kraft
We really enjoy trading stocks that are $10 and under. Often they provide the chance to enjoy high percentage gains and, of course, at worst, the risk is limited to what we paid for the stock.
Here's a look at a trade Bill is currently working on:
Advanced Battery Technologies Inc. (ABAT)
$10 Trader recently enjoyed a 5.7% gain in two days on this
stock, and in the last week, opened a new position. The the area just
below $5 has offered pretty good support and the stock got as high as
$6.40 toward the end of June. I'm keeping a tight leash on my position,
but like the prospects, particularly when the market begins to turn back
up. Meanwhile, the stock is optionable so covered calls can be sold
against a long stock position.
Good Trading!
Bill Kraft
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