"Buy the dip!" screaming analysts yell at you when a stock craters.
I shake my head sadly... it's a trap...
Please... Don't ever, ever, ever do this again. You're risking your entire livelihood on a hunch that a stock will magically bounce back a few points.
It's like picking up quarters in front of a steam roller!
Instead...
I trade full-time using a completely different strategy. I support my wife and our three kids using this strategy. It's a strategy I can hang over 30 years of trading on!
Tomorrow, you could begin doubling your account every single month starting with one letter.
The letter will come from a 20-year trading professional named Ian Cooper. He says, “In 2017, following my trades you would be doubling even tripling your account some months. Let me show you how.”
He will show you exactly what to do... and he’ll give you the blueprint for just $1.
Share allocation is the single most misused, neglected, and damaging aspect of trading. Allocation and leverage are synonymous. Careless share size allocation is what kills off most traders and blows out accounts. Whether this results from filtered intraday scalping, swing trading, investing, or the desperate all-in, Hail Mary desperation trade – size kills.
A trader's job is to identify fertile market environments with solid setups and take advantage with the proper leverage and allocation. A week's profit can be made on a single trade if you filter properly. As you evolve as a trader, you will understand the term "squandered opportunity." Only at these levels can you understand what Sun Tzu meant when he said, "A skilled fighter puts himself in a situation where defeat is impossible, yet never misses the opportunity to defeat the enemy."
The problem with most traders is that they fail to discriminate the super-fertile situations. "Fail" is giving too much credit – most are simply unable to identify these situations because they have not put in the effort. Misallocation comes from ignorance, complacency, laziness, and desperation. This also goes back to acknowledging the clear separation between the learning and earning mode.
I've seen some traders get desperate enough (especially when falling under the pattern day trading rule) that they will just over leverage a cheap stock. There is no more familiar scenario than the trader who may have gained a net profit of 0.50 on ten trades (eight were profitable), but ended up losing $500. The problem is that he took small stops on the eight 200-share trades and bigger stops on the two 800-share trades.
When someone trades 100 shares of the QQQs, and then trades 500 shares of AAPL, it makes no sense when you figure that AAPL moves at a 4 or 5-to-1 pace to the QQQs. In fact, the size should be the other way around, as in 500 shares of the QQQs for 100 shares of AAPL.
The Danger of Static Stock Sizing
Don’t fall into the habit of just trading 200 shares on every stock you trade. This is just as bad as saying you will take a static 0.20 trail stop on every trade you make. This is utter stupidity. The same 200 shares you play on a slow, thick stock like CSCO will end up getting you whacked on a fast mover like MSFT or AAPL.
The Danger of Cost Based Allocation
This is another popular, yet dangerous technique where a trader will allocate $30,000 to every stock trade. This becomes a big problem when the $30,000 you use to play 500 shares of a $60 stock is also applied to 6,000 shares of a $5 stock. If the $5 stock is very volatile or thinly traded, that can amount to a much nastier loss on the same $30,000 trade amount.
Allocation Method
Group the volatility by sector. In most cases, the rhythm of the stocks within a sector indicates how thick or thin the stocks may actually move. Solar stocks are by nature thin, as are fertilizers. From there, you can take them down the tiers and recognize the movements. You can also use stock beta for a general idea. But, your best bet will be watching to see how the stock moves. A thick float coupled with a low price will mean smaller moves compensated with larger shares, and vice versa.
To get a better feel for how thick or thin the stock is, you should dip your toes in with 100 share lots and feel around. Remember that your share allocation is highly contingent on your own comfort zone and progress.
TIP: Go with one-half to one-third scalp shares if swing trading.
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