Position Sizing and Today's Mkt

Laid awake last night ruminating over Van Tharp's chapter on position sizing and its many implications. If you have not read his book, Trade your Way to Financial Freedom, it, despite it's somewhat hokey title, is excellent. While I find that I take a somewhat intuitive approach to position sizing, I realized in creating my own position sizing algorithm in excel last night, that I can take a more disciplined approach to it. He makes the case that more than any other part of your trading plan, the position sizing approach is the most important. I am still processing this one. In short, a stock with an Average True Range (ATR) each day of 45 cts would require you buy many more shares than a stock that has an ATR of 9.98, which by the way is GOOG's 14 day ATR. Too many factors to discuss here, but point is this whole position sizing factor is very important to success and worth putting some time in for your own personal benefit.

I bought some leaps on CSCO yesterday, but didnt get filled on the YHOO and INTC ones I tried to buy. I was trying to add to my positions in both of them, so it wasnt the end of the world. I will most likely try again today.

Yesterday I traded WTS for a good part of the day. This is a water stock that I have owned for a couple years and sold a couple weeks ago and then watched it rally another three bucks....ugh. Thank goodness I didnt chase it. (There is a lesson in there somewhere.) Yesterday after they announced earnings, the stock got creamed, trading in the low 37's. Today, if you can buy this stock with a 37 handle, do it. Long term, this stock is a winner.

Finally, a comment on trading verses investing. I trade a number of stocks. LVLT, MRVL, DE, NUAN, and numerous others. When I buy or short these, I am looking for a percentage move and then I will exit the trade. There are some stocks that I rarely trade, but hold positions in because I like their long term prospects. SHLD, BUD, BA, GSF, GR, DBC, TWX, WU, and UPS are all examples of stocks that I hold, pretty much through thick and thin because I believe that they will grow and make me money. That is not to say that if one of them spikes to the upside that I might not take the whole profit, or sell some percentage of it. An example is BUD, which I expect to open much higher today. I like taking profit on big one day moves and by big, I am talking 2-7% depending on the vol of the stock. Big moves in either direction usually will get me to do something. I sold 3/4 of my WCI yesterday after it was up over 1.30. Another example is the purchase yesterday of the 110 march puts on DE at 1.85. Will look to exit at 2.50 today. That might prove to have been wrong, but I find that over time, trading the extreme moves pays off.