Either you just started trading or you have been at it for awhile and you are feeling confident. You have been consistent and you feel like its time to increase your total size count. Going from 100-300 shares to 1,000 -2,000 shares or something along those lines, right?
Because why not? If you can make $200 consistently then why can’t you start making $2,000 right away?
What are we waiting for?
This has come across my mind before, and probably any other trader who has had some success with smaller size and wanted to start making big money.
Unfortunately there are flaws with this type of thinking. So much goes into increasing size, especially if its by a drastic measure.
Here are 5 ways you can see that you are using too much size
- If You Are Uncomfortable Hitting the BUY/SELL Button.
This was a big tell for me in my trading. Its not just about being nervous about hitting the button, it was when i saw the perfect entry that i wanted, or perfect set up, and hesitated because I was afraid of putting on all that size.
But when I used 100-200 shares, there was no hesitation at all. This really because I new that i could actually tolerate the loss from a 100-200 share loss, if I were to lose. This leads directly to point number #2.
If You Cant Allow Your Stop Loss to Hit/ Adjusting Stop Loss.
This can be another indicator that you have on too much size. Having your stop loss hit is part of trading. No matter what, you are going to take losses over time.
If you enter trades with a predetermined risk set and move the stop loss lower to avoid taking the loss, it often means you can’t stomach the loss because of the size you are using. Leading to point number #3.
If you are not Truly Accepting The Risk You Set.
Don’t lie to yourself and say that “you accept the risk” if you are constantly moving your loss and holding losses farther than anticipated. The reason us as traders set risk is so that we keep our losses small as well as keeps us protected.
Anytime you set your risk for a trade, YOU NEED TO TRULY BE ABLE TO RISK IT.
Which means, if you truly can’t stomach a $200 loss, you need to be using less size so that you have more room to less the stock play out. Using less size will also take a less emotional toll on you when you lose.
When you lose $20 on a trade, can you sleep at night? Most likely. Because you can live with a $20 loss and go into the next trade unfazed. That’s TRULY accepting risk.
If the amount you risk is NOT proportionate to your account size.
These are related to the other points , but not he same. If you see a quality trade, quality setup, perfect entry. It can be tempting to “go all in”.
However, even some of the best trading setup ups fail. No strategy is 100% guaranteed. So what happens when your $10,000 account is now down $3,000 because you went all in.
And when it was time to get out, you only then realize how much of a loss to your account 30% is. So most people hold longer, and longer , and longer. -40%, -60% etc. All that work gone just like that.
If the loss if not proportionate to your account, think twice before sizing up so much.
You want to take the trade off as soon as the trade starts going in your favor.
This one is my favorite believe it or not :). Its my favorite because it shows me how backwards we think in the moment of having big relative size in a trade.
We hold and hold the loss lower and lower because we are afraid to realize the loss, but when we have a lot of size on and the trade works out on our favor, our emotions cause us to exit early.
The complete opposite of what we were suppose to be doing; Keeping losses small, Letting winners run.
We do this because as soon as we put on a trade that we feel is a lot of size, we are already fearful. So as soon as its starts to work out we think “thank God, let me get out before this turns against me”.
Again, ask yourself, “Would I be doing this i had 200 shares in the trade instead of 2,000 shares??” Answer, Most likely not.