What Dictates My Position Size.

I am often asked what is the size of a position in any individual company I hold in my investment accounts. The answer to this question really depends on if we are talking about my Dividend account or my Trading account.

Difference Between my Dividend Account and my Trading Account:

My Dividend account contains stocks and ETFs that pay a regular dividend/distribution, can grow that payout over time and most importantly during market stresses/recessions can maintain the payout. This what professional money managers like Warren Buffet mean when they say hold stocks for the long term. If a company you are holding requires the capital markets to continue operating then it is neither a Value or Growth stock.

My Trading account contains penny stocks that are speculative and by no stretch of the imagination should be considered long term holds. These stocks are highly dependent on the capital markets to fund future growth and during market stresses/recessions many go broke as the capital drys up or shares issued at ever cheaper valuations. They are the first to get dumped from portfolios or shorted by professional traders at any hint of market correction. The frequency of trading them depends on what is happening to the venture market overall and can be held for a few minutes or for many months (more on this point below).

Sizing a position:

The Dividend account is pretty straight forward and is something most financial advisors would recommend. With the dividend portfolio the position size is in dollar terms and is dictated by this simple rule of never letting the dollar amount of any one position exceed 10% of the overall portfolio dollar amount. Positions that do exceed are trimmed back and the profits are put away in a cash account and are reallocated sometime in the future. You can view the current dividend/distribution portfolio Here

The Trading account takes into consideration many variables when determining the size of a position and any one position can well exceed 20% of the overall dollar value of the account. As I won't go into all the variables of how large of I position I will take, but instead will focus on the main variable, which is the overall market sentiment for penny stocks as depicted by a chart of the venture exchange.

I like to use 5 indicators when viewing the chart as follows:

1. The trend using candle sticks and bollinger bands.
2. The money flow.
3. The volume.
4. The RSI - Relative Strength Index
5. The CCI - Commodity Channel Index

Based on the above information I will determine my position size and trading style.

When I start increasing my position size:

• RSI and CCI oversold.
• Trend is breaking to the upside from the lower band.
• Trading style: Less Day Trades, More Swing Trades, Some Position Trades.
• Profits are allowed to run.

When I further increase my position size:

• Volume and Money Flow increases.
• Trend continue to towards the upper band.
• Less Day Trades, More Swing Trades, More Position Trades.
• Profits are allowed to run.

When my position size stays the same:

• RSI and CCI neutral.
• Trend is at the upper band.
• More Day Trades, Less Swing Trades, Less Position Trades.
• Proceeds from positions trades are banked.
• Profits are banked.

When I start to decrease my position size:

• RSI and CCI overbought.
• Trend is hugging the upper band.
• More Day Trades, More Swing Trades, Close out Position Trades.
• Proceeds from position trades are banked.
• Profits are banked.

When I further decrease my position size:

• Trend is breaking down towards the lower band.
• Money Flow turns negative.
• More Day Trades, More Swing Trades, No Position Trades
• Profits are banked.

When my position size stays the same:

• RSI and CCI oversold.
• Money Flow and Volume negative.
• Trend is hugging the lower band.
• More Day Trades, No Swing Trades, No Position Trades.
• Profits are banked.