Today's Quote: “No evil propensity of the human heart is so powerful that it may not be subdued by discipline." - Lucius Annaeus Seneca.

Yesterday we touched on some of the pitfalls of improper share sizing. It comes from just playing a set number of shares rather than a set risk amount. When you always play ‘1000 shares’ it means that the stocks with wider stops cost you more when they stop out. Sometimes they cost way more. Why should some plays cost you more than others when they stop? It also means that smaller stocks will deliver smaller profit when successful. Why should that be the case? All similar plays should have similar loss dollars if they stop out. This means higher share sizes on tighter stop plays which generate bigger wins.

From a psychological point of view, you should not have to worry about one play costing you multiple times what another play costs. It will likely make you alter how you handle the management of the play. So it is recommended you take the size of the stop into consideration and adjust your share size so you lose a set amount on stopped plays. That amount may vary with different time frames or strategies if you like, but should be similar risk for similar plays.

For example, many traders will risk more dollars on a core trade because their occurrence is less frequent. On the other extreme they may risk the least amount of dollars on a scalp trade because of the high frequency possible with scalp trades. Some traders may decide to risk more dollars on a specific strategy. There is nothing wrong with this if it is a favorite strategy and there is a proven track record of success. The goal is to avoid random discretionary high dollar risks on single trades without any rationale.