How do you size your position when adding to existing positions?

fd1

Newbie
8 2
I've been pondering over this question for some time. Please give me your experienced feedback.

Suppose I want to establish a position in Apple stock. X amount is full position to put into Apple. I prefer to add to winning positions. Assume Apple is on the way up and I have 3 trades to make on the way up.

Which scenario is your preference?

Scenario 1
- 1st trade -> 33.33% of X
- 2nd trade -> 33.33% of X
- 3rd trade -> 33.33% of X

Scenario 2
- 1st trade -> 50% of X
- 2nd trade -> 30% of X
- 3rd trade -> 20% of X

Scenario 2
- 1st trade -> 50% of X
- 2nd trade -> 20% of X
- 3rd trade -> 30% of X

I chose scenario 1. The reasons are;
- keep things simple
- No confidence which particular trade will work. So, keep position size the same throughout.

Scenario 2 and 3 are more risky because initial position is larger. Higher losses will result if the stock pick is bad.

I plan to use the same method to accumulate all other stocks in the portfolio.

How would elitetraders approach this position sizing problem? There is no right and wrong answer but I would like to hear your reasons behind your choice. I would also like to see if any of the experts here see anything wrong with my reasoning.

Thank you.
 
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Trader333

Moderator
8,495 881
In my view it will depend on your time frame for acquiring the stock and how long you intend to keep it. So are you looking at this as a long term trade / investment and if not what is your overall objective ?
 

fd1

Newbie
8 2
I am looking at a long term trade. Which scenario would you choose if it is a long-term trade? How do you see the position sizing differently with different time frame?
 
Last edited:

J_C_Anderson

Active member
125 21
As for me, the best way is to use equal size positions on the short pullbacks. The most important point is that each new additional position has its own stop to prevent substancial impact on the initial position.
 

tomorton

Legendary member
7,277 972
All my trades are at a set % risk of account capital, I'm currently using 2% of capital as the limit.

e.g.
If price is moving in a really consistent uptrend, when profit reaches 2%, I like to move the stop-loss to break-even and enter a new buy order with another 2% risk. And so on and so on, each time profit reaches another 2% step. So risk to capital never exceeds the original 2% limit but profits grow exponentially.

This is not a frequent occurrence but maximising the big wins is a key element in trend-following as it has much waiting time and many very short trades in trends which pull back too far to hold onto.
 

Akinozragore

Junior member
43 4
I would definitely not go with the last scenario from three offered here. If we are trading in longterm for the purchase during the rising trend, it is not that profitable in my opinion to be bought by the last deal with a higher volume than previous. Scenario implies, that the first deal will be closed at the most profitable price, two others are more for safety. But even after we made the first purchase the price drops down, I don't see any sense to make the second purchase with the smallest volume. It is better not to buy at all and wait for a while if you are not sure that the price is profitable.
The first option is really the most beneficial and makes sense. I like the second scenario the most just based on my feelings, but it is not necessarily that I would make the decision based on the intuition. In any case, it all depends on the strategy. Based on what we have even decided that the trend will be raising?
Too much in this situation is linked to the rising trend and it makes it even more complicated for me. And basically, it is been a while since I was trading based on the forecasts. Instead of it, I make price analyses and to what extent it is profitable now. I wouldn't buy an asset, which was extremely raised lately, even if all indicators show in favor of its further growth.
 

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