Position Size & Risk. Help! I'm confused....
I have a question about position sizing and investment risk. I understand that a 2% risk on a $10,000 portfolio would be $200. But what if I only want to invest $5,000 (half) of my portfolio in one stock and keep the other $5000 in cash? Is my 2% risk now just $100 ($5000 x 2% = 100) or is my 2% risk still based on the original overall size of my portfolio ($10,000 x 2% = $200) even though I am only presently only investing $5000 into one stock position.
I am currently reading both Elder and Link's books and they seem to contradict one another on this issue. Elder seems to say that your 2% risk is always based on your entire portfolio of $10,000 (cash, open stock positions, everything in your trading account basically) no matter the size of the trade  so $10,000 x 2% = 200. Link advocates leaving half your portfolio in cash ($5,000) and only investing the remaining cash ($5,000  your at risk capital)  and then proceeds to take 2% of this amount  $5,000 x 2% = 100).....so I'm confused. Is my risk on $5,000 dollars $200 or $100.......
I have done a lot of wonky reading on this subject, but I still need some clarification. Thanks!
