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

[fd1]

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]

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]

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?

 

[J_C_Anderson]

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]

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.