# Position Size Matters More Than You Know

Written by Timothy Sykes

Traders on twitter love posting their photoshopped, I mean big wins on the platform. Look around, and they’ve got you believing they’ve never had a trading loss.

But how many actually post their results?

I make it a point to show EVERY trade I take RIGHT HERE for anyone to see, whether you’re one of my students or not.

But I pride myself on CONSISTENCY and TRANSPARENCY.

Just take a look at my stats this year:

Yet, my average win is only \$634.11, and my average loss is only \$403.20.

Most folks would be happy with that kind of annual profit.

What they don’t realize is that it doesn’t require +\$5,000 wins to get there.

That’s why I want to share with you a simple blueprint to help you create a plan for CONSISTENT profits.

## Collect Data

Before you can determine the correct size, you need data.

I track every one of my trades here at Profit.ly

Every one of my students who became a millionaire trader kept a journal.

Some were more robust than others, but they all had the same objective – summarize your results.

All you really need is your:

• Position size
• Entry
• Exit
• Date
• Symbol

Ideally, you’d want to log your:

• Profit target
• Stop loss

Once you collect enough data, you’ll want to calculate the following stats, similar to the screenshot of my account:

• Win-rate
• Average % win
• Average % loss
• Overall profit

Notice that I put the average percentage win/loss, not the dollar value. I’ll explain why that is in the next section.

Once you collected the data and calculated your stats, it’s time to determine the correct position size.

Base the position size off your potential losses, not profits.

Here’s an example.

Say you have a \$5,000 trading account.

Ideally, you don’t want to risk more than 5% of the account on any one trade, or \$250.

You look at your data, and it says your average loss percentage is 8%.

If you take \$250 and divide it by 8%, you get a position size of \$3,125.

This is the maximum amount you put to work on any trade.

If your entry is \$2.00, you would buy no more than 1,500 shares.

With an OTC penny stock entry of \$0.095, you would buy no more than 32,500 shares.

In both examples, I rounded down to an even lot.

## When to Scale

It might seem like a good idea to just naturally scale up as your account grows.

However, I’d caution you against that.

If I start with a \$5,000 account, I want to keep my max loss at \$250 until I reach \$7,500.

Then, I can increase my size.

But between \$5,000 and \$7,500, my position size remains the same.

Also, if I take a bunch of losses in a row, I want to cut my position size down and give myself a chance to regroup.

Strings of losses will happen. But, you want to ensure it isn’t caused by poor decision-making.

## Pay Attention to Volatility

Markets can and do change.

I talked about how August and September were difficult months for stocks.

Volatility increases, as does the chance of crashes.

When volatility increases, position size should decrease.

Think of it this way.

Increases in volatility mean your average losses are likely to increase.

So, if they increase, you need to compensate with smaller position sizes.

Now, this doesn’t have to be a one-way street. You can increase your profit targets if it makes sense.

## Final Thoughts

Err on the side of sizes too small rather than too large.

More traders blow up their accounts from massive losses than by not taking enough profit.

—Tim

### How much has this post helped you?

#### Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading \$12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage (\$16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”