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Daytrading: Optimum Trade Size?
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Daytrading: Optimum Trade Size?

  #1 (permalink)
Elite Member
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Daytrading: Optimum Trade Size?

I am interested in daytrading stocks. I don't want to hold overnight, lest I lose ¼ of my account. Netflix last night was an example. I want to make, perhaps, 1 trade every hour for 1 to 3 different stocks which give me alerts. I am looking for at least 8¢ profit per share up to 25¢/share.

Assuming the stock prices range from $9 to $50, average >= 200,000 shares per day volume, cash account (not margin), account is large enough to accommodate any trade size, ignoring commission fees:

1. In your opinion, what would you say is the optimum trade size?
2. In your opinion, would 1,000 share trades result in bad fills with a lot of slippage?

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  #2 (permalink)
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  #3 (permalink)
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I would limit it based on how much money I have. I would risk only a % of my capital per stock. What that % is, is really up to you. From what I've read, it's better to size things based on amount of capital invested instead of amount of shares bought.

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  #4 (permalink)
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For day trading should be less than 0.5% of your account risked per trade.

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techstocktrader View Post
I am interested in daytrading stocks. I don't want to hold overnight, lest I lose ¼ of my account. Netflix last night was an example. I want to make, perhaps, 1 trade every hour for 1 to 3 different stocks which give me alerts. I am looking for at least 8¢ profit per share up to 25¢/share.

Assuming the stock prices range from $9 to $50, average >= 200,000 shares per day volume, cash account (not margin), account is large enough to accommodate any trade size, ignoring commission fees:

1. In your opinion, what would you say is the optimum trade size?
2. In your opinion, would 1,000 share trades result in bad fills with a lot of slippage?

Cash account could be a problem as some brokers have a 3 day settlement.

Position size depends on your system.
Your risk reward ratio; your win percentage; the number of signals you get per day.

Why ignore commissions and don't forget about slippage. They are costs that constantly eat into your capital.

My plan calls for risking less than 1% of capital per trade.

It is hard to find the Truth when you start your search with a preconceived notion of what the Truth will be.
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  #6 (permalink)
Trading Apprentice
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In Reply

Measure your entry price against your ultimate exit price.
Whatever that difference is denotes your risk tolerance on a per
trade basis. ie; risking $100, differential is .25, then 400 shares.

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  #7 (permalink)
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deaddog View Post
Cash account could be a problem as some brokers have a 3 day settlement.

Position size depends on your system.
Your risk reward ratio; your win percentage; the number of signals you get per day.

Why ignore commissions and don't forget about slippage. They are costs that constantly eat into your capital.

My plan calls for risking less than 1% of capital per trade.

I'm not 100% sure what you mean by "Cash account could be a problem as some brokers have a 3 day settlement." Could you tell me what you mean by that?

Regarding my first question, I'm trying to figure out if I should change my commission plan with TradeStation from a 1¢ per share basis, up to 500 shares, to a fixed amount per trade. The fixed amount is $10 down to $5 depending on activity.


Last edited by techstocktrader; October 17th, 2014 at 07:10 PM.
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  #8 (permalink)
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SurfnTurf View Post
Measure your entry price against your ultimate exit price.
Whatever that difference is denotes your risk tolerance on a per
trade basis. ie; risking $100, differential is .25, then 400 shares.

In terms of trade lot size, would 1,000 share trade lot size be a big foot print? Would I get poor fills with a lot of slippage?

I'm trying to figure out if I should change my commission plan with TradeStation from a 1¢ per share basis, up to 500 shares, to a fixed amount per trade. The fixed amount is $10 down to $5 depending on activity.

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  #9 (permalink)
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techstocktrader View Post
1. In your opinion, what would you say is the optimum trade size?

In probability theory and intertemporal portfolio choice, the Kelly criterion, Kelly strategy, Kelly formula, or Kelly bet, is a formula used to determine the optimal size of a series of bets. In most gambling scenarios, and some investing scenarios under some simplifying assumptions, the Kelly strategy will do better than any essentially different strategy in the long run (that is, over a span of time in which the observed fraction of bets that are successful equals the probability that any given bet will be successful). It was described by J. L. Kelly, Jr in 1956.

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techstocktrader View Post
I'm not 100% sure what you mean by "Cash account could be a problem as some brokers have a 3 day settlement." Could you tell me what you mean by that?

My understanding is as follows;
Brokers have 3 days to settle your account or pay you for the shares you sell.
If you have $10,000 in your account and buy 10k worth of stock.
Now you have no money in your account.
Then 1 hour later you sell the stock for $10,500.
The broker doesn’t have to settle that trade for 3 days.
So you have no money in your account to buy your next stock.
Some Brokers won’t let you trade until the prior trade is settled.

My question is why wouldn’t you have a margin account?

It is hard to find the Truth when you start your search with a preconceived notion of what the Truth will be.
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