Position Sizing

We recommend our members to trade appropriately based on their account size. One general rule to follow when growing a portfolio: Never put more than 40% of your portfolio into a single position. Doing so puts a large amount of your capital at risk in case your position moves against your trading plan. We do not recommend leveraging your trade with margin buying power unless you are an experienced trader and understand the risks. Trade according to your plan. Always know your stop loss and capital at risk. Potential rewards should be at least twice as much as your capital at risk.

Example: I go 2000 shares long on $ATV @ $7.50, with a stop @ $7.30, and looking to exit at $7.70 or higher. My risk is $400. I know my entry, exit, and stop loss.

Using confidence levels is another way to determine position size.

Level 1 Confidence

10% of buying power ($1000 into the trade)

Small position, good for volatile stocks which require looser stop-losses.  This will allow me to risk less, with more of a cushion from entry to stop-loss.  Risky plays like scalps, premarket, after-hours, and overnight plays will be sized in at this confidence. 50%-55% confidence

Level 2 Confidence

15% of buying power ($1500 into the trade)

Also a small position in which we are slightly more confident, placing a slightly tighter stop loss than that of level 1.  Same concept as level 1 confidence except we are looking to reap a larger $/share reward here.  55%-65% confidence.

Level 3 Confidence

20% buying power ($2,000 into the trade)

Momentum has a clear direction.  We’re in for a good price per share position here as well.  Medium-low volatility, these are usually longer holds than level 1 and level 2.  Normal stop loss here, not too tight, not too loose.  These are plays where we’re about 65% confident.

Level 4 Confidence

30% buying power ($3,000 into the trade)

I am lucky to receive this setup.  I am familiar with this stock, and the way it moves. I’ve been watching it for a long time now and know what price it’s under/overvalued in the short-term. I also know how to gauge where it’ll be according to any news that’s been released as a catalyst. I’ve planned this trade out and I am completely aware of my risk and potential reward. If things do not go as planned, my stop loss will save my shirt. At this level we’re about 75% confident in our trade.

Level 5 Confidence

40% buying power ($4,000 into the trade)

40% should be considered the all in. There’s no way this stock will turn the other direction anytime soon, momentum is enormous, volume is enormous, all indicators are pointing in this direction. The stock also has high liquidity so we’ll be able to get in and get out with large size using limit orders. Spread is also low here. Extremely tight stop losses here due to the amount of size we’re going in with.  We should have a clear idea on where the top/bottom is.

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