A few weeks ago I updated our followers with the current results of our heavy volume trading strategy, click here to see the past blog. After a couple of week’s of tracking results and trading the strategy live we ended up burning roughly $3,000 on about 150 trades. Each of these trades were put on with $2,500 in notional value and then if the position was positive at the end of the day we double the position taking it up to $5,000 in notional value. I explain all of this in detail in the link provided above.
After taking losses over the last few weeks we noticed that having every stock set at a hard $5,000 in notional value just wasn’t rational. The strategy isn’t rational because the volatility is different for every stock and the price swings between $5,000 of a $50 stock and $5,000 of a $1.50 stock are much different. After analysing various scales for getting the position sizing in check we came across one calculation. Since we are buying heavy volume breakouts and selling heavy volume breakdowns the daily range for that specific day is roughly 4x the average daily range. If we figure a hard pullback/rally is 50% of the breakout/breakdown days range we can calculate a share size depending on our risk.
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