All,
Was the following the discussion on position sizing and SL's on this thread and I thought it prudent to share a few points with all, especially given today's volatile market and the concerns that people start to have soon.
Risk diversification
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Most of us in this thread are part time investors and usually do not have time to follow markets on a very regular basis. So, it is important to accept that fact and not behave like very short term or intra-day traders. Of course, people who can monitor markets during market hours can make better profits than us. Given this fact, it is important to diversify risk by not concentrating our equity holdings in a few stocks. Some very basic rules would be
1. Not more than x% of your holding should be in one stock. I like to keep it below 5%. That would mean that you are diversified across 20 stocks at least.
2. Assuming this 5% of the amount comes to 20,000 per stock, put only y% of the amount in a stock at the given point in time when it triggers a buy as per Savant's list. Decide this percentage depending upon your risk taking capability. This means that you are leaving cash in your hand to either add to your existing position in the same stock or buy some other stock. In a good uptrending stock, you will get multiple opportunities to add. Also, it is important to stagger your buys to decrease the risk.
3. Diversify your holdings across industries - when you have a choice to pick stocks from Savant's list, look at the strength of the triggers but also look for some thing from a industry which you are not holding already. For example, recently we are seeing a lot of media related stocks giving buy triggers - they had not been participating too much in the overall up move earlier.
Stop loss
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1. Adhere to the stop loss as given by Savant when the buy was triggered. If a stock closes below the stop loss, you need to cut your position in the stock next day. Please do not end up hoping it might come up to your buying price.
2. Try to make sure you do not end up loosing more than 1% in any trade. That is why the number of stocks and position sizing is important. You might have money to buy more stocks but if the stop loss is far off, then you need to calculate how many shares you should buy so that you do not end up loosing more than 1%. Read up on position sizing to know a bit more on this aspect.
Of course, this is just my 2 cents on this topic - there are enough seniors here who know a lot more than I do. And this is meant more for people starting off in the market. Others, who know the risks they are taking can work with other rules or different percentages.
Happy and safe investing,
Enygma.
to keep record of stocks i will be following