Saint,
I have a very basic doubt...actually not a doubt, but a basic non-understanding of a key factor here.....position sizing.
See...in the current trade, we added to our shorts at 4279, with 4360 as a stop. So, we risked 81 points...lets say we risk 1% of our capital on it.
Now we get another add at 4249, with the stop moving down to 4352...which is we risk 103 points.
Now, the risk from the earlier add (4279) still stands at 73 points, which makes the total outstanding risk of this trade at 176 points(73+103). Now in such a scenario, how do we position size???? (No, we cant position size a new entry by taking 173 pt risk for this position. Our earlier position of 1% risk would have at best come down to 0.85% risk on capital..and risking the leftover 0.15 odd % of cap for 103 pts would make the position really miniscule.)
I hope I am able to express my problem correctly...if yes, please let me know your views.
Thanks as always,
Rakesh.
ps: Due to this dilemma, I skipped taking an add at 4249.
I have roughly understood the question,Rakesh.......may not be exact in the undertanding.
But just communicating what I do........I don't want even the position sizing to get too much of a rocket science and would like to keep things as simple as possible.
Let us presume I am trading with 10lakhs.Simplistically,I don't mind risking 1-1.5% in that trade.Let us put it at 1%.1% of 10L=10,000.Meaning max.risk in that trade is 10k.
Now,I short the market at 4425 with my stop loss at 4508.Difference of 83 pts.Meaning 10,000 divided by 83=120 shares.So,the max I can short is 2 lots.So we short 2 NF at 4425.......if stops are hit,loss=8,300
ADD 1 is at 4324,now I want to short 2 more lots.Stop loss at 4387,average of 4425 and 4324 is 4375.Difference is 12 points.....if stops get hit,loss=12 x 200=2,400.Is it less than 10,000?Yes it is......so add the shorts at ADD 1.
ADD 2 is at 4280,stop loss at 4360,Average of 4425,4324,and 4280 works out to 4343,.....Difference between avg and stop=17pts....if stops get hit,loss=17 x 300=5,100?Is that less than 10,000?Yes it is......add the shorts of 2 lots more at 4280.
ADD 3 is at 4246,Average now is 4319,stop loss at 4352.........Difference is 33 pts....if stops get hit,loss =33 x 400=13,200......Now I am not overly concerned with the mild peep over the 1% mark,I would take that 2 lots.But if you are uncomfortable,short only 1 lot,your avg now works to 4329.Stops at 4350.Difference is 21 pts....If stops get hit,loss =21 x 350=7,350.
For me,I would take both the 2 lots....but up to your Rules of your Plan that you have drawn up.
Saint