Friday, August 17, 2007

Position Size

I just got an e-mail from a subscriber and it prompted this post. The key to making money in the stock market has nothing whatsoever to do with being right or wrong. It's all about position sizing, period. If you never listen to anything else I say, If you think the COT is junk, if you hate every strategy I've ever posted that's fine. If I can make you believe me on position size then I will have done you the greatest service anybody could do. First off let me say the best thing you can do is ignore all these idiots and their leveraged options crap. Options can be great tools when used properly. You can control risk wonderfully with options. However I suspect almost everyone uses them for leverage. When used for leverage especially large leverage then you're almost guaranteed to destroy your account. Many newbies are wrapped up in making the correct call. Making the correct call is meaningless in the long haul. It's not about how much you make. The key to making money in the markets is how much you lose when you have a losing trade, period. Sure the COT is down 2-3% on this particular trade. So what? It's up 50-80% over the last 4 years. I don't know about you but I'm willing to trade a small loss occasionally to make those kind of returns. I also know that no system can win every time and I don't need it to win every time just more times than it loses. If it does that then in 10 years I'll have a lot more money than I do now. I guarantee someone who trades emotionally and with too large of a position size will be gone 10 years from now. You decide whether you want to be here in 10 years or not.