How to take winnings with smaller position size

[kmelihk 0]

Hi everyone, wanted to ask opinions, especially those of you that take earnings like Andrew, in successive steps rather than at once. For example, you get out 1/3 of your position once you make enough to cover commission, another 1/3 once you reach target and you let the rest run as far as it will go. I love this idea, however if your account and therefore position sizes are small, how would you take your profits? I typically trade 100 shares at a time, and I find it extremely difficult to be able to break this down due to high cost of transactions and low position size. Even with 3 dollars commission of CMEG, that's 6 cents + spread you need to make to break even, and if you break this down further, the costs and required break even levels will go up pretty fast.

 

Some options I thought of were:

 

- Trade equities that I'm able to get at least 200-300 of rather than 100. This limits my selection quite a bit, and I'd rather not trade low float all the time, too risky.

- Trade out only at target or stop loss. This can reduce earnings and increase risk, and with a smaller account, I'd rather turn my losses to break even as much as possible.

 

Obviously I don't like either of these solutions, but I can't think of any alternatives. I would love to hear if anyone has found any solutions to this problem.

 

[Robert H 450]

I'm with IB and currently trade 100 share sizes. My commissions are 0.0035/share, with a minimum of 0.35 per ticket. This is considerably less than CMEG, but maybe my scaling out strategy could provide some insight.

 

I exit 1/3 of my current position at a time. So starting with 100 shares, I exit the first 33 shares after a 0.25 to 0.30 cent move. This leaves me with 67 shares. If the price action is choppy, I may exit another third (22 shares) at this same level. The remaining 67 or 45 shares I hold onto until my profit target. Here I usually tap the hotkey 2 to 4 more times and try to maximize profits. I keep my last 10-20 shares until break-even or new 5-min low/highs. Since I am mostly out, there is no rush to exit and I watch for bullish/bearish signals. A typical round-trip trade is usually 5-7 tickets.

 

This exit strategy isn't feasible at $2.95/trade on 100 shares. Perhaps you could exit in 2 steps. First half after a sizable move in your direction, and the last half at your target. This way you can lock in some profit and move your stop to break-even.

 

Trading low floats in an attempt to minimize commissions is a very risky strategy. With a smaller account, I would recommend that you focus on surviving the learning curve until you can grow or add more capital. Breaking even after commissions in the first few months is considered success in my books. My two cents.

[WilliamH 66]

One way I started out which really helped me, was to look at my % gains and loss, without worrying about the actual $$$ amount gained or loss.

I started with 20 shares, and that might be on a $2 stock. I made 4%! WooooHooo! What a great trade. but I lost money with Commissions and scaling out.

But it didnt matter. It made me feel so good to know I made a great % EVEN THOUGH I LOST MONEY. So then the next day I would increase share size by 5-10 shares, and so on and so forth.

I figure if I am in this for the long term, short term losses on learning and practicing trades in a live account is well worth it. Maybe I lose $10's-$30's on winning trades, but If I can keep that up while increasing my share size ever so slowly, I will make back that money in the near future with smart trades and bigger shares. I am very confident that it is MUCH easier to increase share size to 1000 shares, and tell yourself you only need 1 good trade and make up all the commissions u have paid out on your small share trades . . .that is a perfect way to lose the game before you even have a chance to play.

 

Hope that makes sense.

[Aiman 86]

On 4/5/2018 at 11:38 AM, Robert H said:

I'm with IB and currently trade 100 share sizes. My commissions are 0.0035/share, with a minimum of 0.35 per ticket. This is considerably less than CMEG, but maybe my scaling out strategy could provide some insight.

 

I exit 1/3 of my current position at a time. So starting with 100 shares, I exit the first 33 shares after a 0.25 to 0.30 cent move. This leaves me with 67 shares. If the price action is choppy, I may exit another third (22 shares) at this same level. The remaining 67 or 45 shares I hold onto until my profit target. Here I usually tap the hotkey 2 to 4 more times and try to maximize profits. I keep my last 10-20 shares until break-even or new 5-min low/highs. Since I am mostly out, there is no rush to exit and I watch for bullish/bearish signals. A typical round-trip trade is usually 5-7 tickets.

 

This exit strategy isn't feasible at $2.95/trade on 100 shares. Perhaps you could exit in 2 steps. First half after a sizable move in your direction, and the last half at your target. This way you can lock in some profit and move your stop to break-even.

 

Trading low floats in an attempt to minimize commissions is a very risky strategy. With a smaller account, I would recommend that you focus on surviving the learning curve until you can grow or add more capital. Breaking even after commissions in the first few months is considered success in my books. My two cents.

Hi Robert, Thank you for this explanation.

I do have a question anyway.

I'm trading in simulator now, but I don't use break even as my quit target. I always try to trade 5 cents above a moving average or technical indicator so I can set a stop loss 5 cents below that technical indicator. This way my stop loss usually hits after 10 cents in the opposite direction. I try to make my profit target 20 cents or more above my entry point. But 20 cents sometimes is a big move I can't expect, so I usually take half position profit when I reach the 10 cents profit, and leave half either for break even or for the stock to move higher. This way I cover the IB commission and 3$ next to it if I take 100 shares minimum.

Now the problem is, with this strategy my risk to reward becomes 1:1 if I hit my final target, and even less because I take only half of the profit most of the time, and then  if the stock moves against me I quit at break even with 3$ profit after the commisions while I was risking 10$, if it hits my final target (2:1) gets hit, with this strategy it becomes kind of 1:1 because I scaled out. It's not that bad in the end but what I don't like with this strategy is the following:

It's typical that after entering a trade one starts with -1/2$ because of the spread, depending on size of course, if the stock goes against me right after I enter it I end up losing 10$ after hitting my stop loss, which isn't so favorable considering I take full loss and scale out of a winning trade, this way my losses are equal to winnings. 

I think this strategy will work better with more shares maybe, I'm not really sure..

I was thinking of something but I don't know, would you recommend I set my stop loss at break even if the stock starts moving up? I mean it starts -1/2$, if it gets +4, then falls to 0 I just have to quit? Or I should give it 2/3 cents below it? This way there won''t be a technical indicator for a stopp I believe.. Or I should just try to take better entry points? 

I've been green in the simulator for like 10 days out of 12, I don't average down and stick to the rules, but still this is a simulator, that's why I stick to those 10 cents stop losses and give the stock time to adjust, I don't know if I'll do that with real money  I'm following the strategy only because I've to follow rules, it pays of for now, but the risk to reward isn't favorable

Sorry for making this way too long -.- hopefully you've time to help me with this))

[daniel lindegren 27]

Are you at the level to be trading live yet? If not, I would suggest trading in your simulator until you're comfortable, and consistently green. Then, you can comfortably transition to your live account and take a little bit bigger position size so you can turn a profit.

[Skye 28]

Kmelihk, I have struggled with this as well. Trading low shares on CME also.

For us, us being people with smaller accounts who are charged by the trade instead of by the share, we can't scale out like that. I looked at some different strategies and came to some conclusions and did some other things that are working OK.

1. We really can't trade with Andrew! It's just a completely different style of trading. The small moves he takes, jumping in & out, scalping, all different strategies... it's awesome to watch but it's like watching someone who is really good at drawing cartoons and trying to do it with them at the same time. When I try and trade while listening to Andrew I usually destroy my daily plan. Listening to Brian this week has been completely different and works much better for me. Much slower and more methodical. I think Andrew is a great teacher but following his live action is only going to work for people who are already at a pretty high level.

2. What others are saying is exactly right. Even though we want to actually make money going live with small shares and so it's easy to focus on the profitability of that, we actually need to focus on being consistently green without fees in mind. That doesn't mean that we don't work on strategies and other things to maximize our opportunity to make a profit and the beginning stages of trading with small share sizes, but we can't fix everything at the same time. I think the goal at first should be breaking even, with fees included. It's frustrating because you're thinking, "I WOULD have made money if I was trading 300 shares!." But it is what it is. I do show what P&L would have been with 3 times the volume, just to let my self see what WILL be happening.

3. Overtrading is death! Bad habit for all of us but particularly if you're trading low volume. You finally get that one that runs but all it does is make your money back for the 12 losses you took before. This is something you see Andrew do. He'll lose a few, then get a good one and make a bunch of money. Doesn't work for us, and not just because of the lower shares. He's really good at stopping early and cutting his losses when he has a stinker, but waiting through a pull-back and having it work. Reading the price action like that is one of the hardest things to learn I think. We really need to wait, wait, wait for that one we're almost sure is the right setup.

4. Order size is really important. It's easy to be sized too small so even when we get a good trade we make no money because the stock is just not moving as much as we thought (maybe this doesn't happen to you, but it's been my experience many times). I have just started using the double-click/hot key setup that automatically sizes my shares and found that to be REALLY helpful. It's in another post in the forum and was also featured in last weeks Bearbull Buzz.

5. I think it only makes sense to sell twice, if that. I sell 1/2 at a good cover point and let the rest ride until the 5 min. candle closes below the moving average, as a rule. If it's really extended and that move to the moving average will mean a large pull-back I'll sell when it starts breaking down and/or at a strong resistance line or whole number. Initially I crunched a bunch of data from my trades and found that the most profitable thing was to sell when the 5 min chart stopped making higher highs/lows, but found that in reality that just made my holding times shorter which got me into more trades (see #3).

6. We REALLY need to watch our entries. If we get in a bit late for an ABCD for example, and sell 1/2 at the high of the day, many times it won't be enough to be worth selling (also see #4).

 

So it requires a different selling strategy for sure, and we really need to be better than we would trading more shares to make any money. But it's a god education. It really highlights our mistakes and forced us to execute better which will really help in the future. It just means a longer lead-time to profits. And in the future we'll be able to do more things we just can't do now.