Although it may seem like common sense, and in reality it is, investolators should give some thought as to how large a position in any given stock they are willing to hold. Many new traders overlook this to their detriment when starting out.

Ted Warren has a very well defined methodology to trading stocks and I believe one that will reap rewards for those practicing it.

In reference to TW's methods and postition sizing, we stock traders are blessed in the sense we can easily apply the Equal Value Units that Van Tharp discusses in his book "Trade Your Way To Financial Freedom." Quite simply, the "Equal Value Units" takes your capital and divides it up into even increments to be alotted to any one investment. For example, 5000 dollars can be broken up into 5 units of $1000 or 10 units of $500 or...?.

In doing this, you are predetermining how much you are willing to dedicate and put at risk in any one trade.

When you understand the simple concept of postition sizing and how it can dramatically effect your trading, you are yet another step closer to being a successful investolator.

Consider the new investolator who wants to hit the "big one" right off the bat. He/She has $2000 to try this Ted Warren stuff out and lets give him the benefit of the doubt and assume he has both entry and exit techniques all fiqured out.

He takes his $2000 and puts it in ABC company. ABC takes off in 4 months time and he makes 200% profit and now has $6000 to trade. If he continued with his position sizing model, he would put his $6000 into XYZ company. XYZ does not take off soon. Rather, it gave him a quick small sucker bait move, fell quite a bit lower, went into consolidation for another 3 years before blipping up momentarily to where he initially bought it and then proceeded into receivorship. This individual, after lossing all his trading funds, might very well say that Ted's methods don't work.

Another individual using a position sizing model dedicating 4 units of $500 for his stock purchases with the same $2000 would have seen his purchase of ABC add only $1000 to his account size(giving him the ability to buy an additional 2 stocks over his initial 4). He would have only lost $500 when XYZ went belly up, though.

At the present time the second individuals account would have a total of no less than 7 stock purchases ( or ability to purchase 7 using a $500 position size) with one stock, XYZ, that went belly up. He has insured that even through the tiresome patience period we must endure, that the sky really is the limit for his TW account.

The first individual is undoubtedly frustrated and is wondering what went wrong. Keep in mind that this first individual could have been right 9 times in a row, building his account to $50000 from his $2000, but was bound to loss it all on the 10th trade which failed- and its all due to his position sizing model. In essence, he lost because he developed his personal Ted Warren system to have a negative expectancy. Negative Expectancy refers to a system that when traded consistently over a period of time, will continue to generate higher account losses as oppossed to gains, regardless of the number of winning trades to lossing trades.

Ted tells us in his introduction that "Perfection in this field can not be attained...". Whether you choose to simply think in terms of "don't put all your eggs in one basket", or rather choose to look at it as developing a positive system expectancy, postition sizing is a very important factor. We must consider its effect on our overall ability to make money in these markets.

I invite my fellow TW traders to offer insight and ideas into the present models they are using in terms of position sizing.

Lester

Hello Lester,Glad to see your post.If you got a Email from Tony that was me. This is one of the most important issues that a trader must face.Most new traders will play the blame game the minute they start loosing money in the market. They take there nest egg of 5000 and put it into a stock that they think will go up 2-4 hundred percent.As there position falters the emotions spark.I think one drawback to humans is there patience level. We seem to want everything now.TW talks about taking a contrary position to what the public is doing.Its very hard to change old attitudes.Anyway you are right about position.It is better to position myself in 5-6 stocks then to put it all in one co.Another position i like to take is companys with saftey and strong fundamentals.Using TW method of charting we can find these type of stocks that go much higher than the 1-2-3 hundred % that is normal.The other position i take is my play money to go into a little more speculative issues using Ted Warrens method.The buying is eiser than knowing when to exit because things happen so fast.I would like to see the newcombers ask lots of questions and answer the questions.Anyone whose feelings get hurt because of he or she answered a question not right is still in the hands of the public.Constructive critisium works wonderfully well. I probably need more help than anyone.So forum, do a daily post and learn.We all Learn. Maybe we could have a downtrend day,then a base day, then a volume day,then a signal day and ofcourse a couple of catch all days.I would wager to say that in a short period of time there would be alot of very proficient TW people on this forum.I am only putting down what i have been thinking about lately. You can make your own ajustments to what i have said.Please comment.

Hi Tony,
I would like to know what other fundamentals you look at when you are deciding which stock to buy. I know that Ted had said that earnings really don't mean anything, but I have noticed that the ones I have lost the most money on have the worst earnings. I also think that when it is time to unload these things to the non-tedheads, THEY think earnings are important, so isn't that something we should consider? I totally agree with the point that you shouldn't put all into one stock, it should be divided up, that is until that one really hits it big and then you wish you had everything in it!

Hi tp,if you scrool down to lesters comment on position sizing you will understand the importance of diversifying.You can have that big winner in diversifying.Okay,so you lost a little on some stocks.Without knowing what the stocks are i can only suggest a couple reasons for your discouragement when you sold.No.1,you may have been new to the TW method and not totally secure in the charts.Your entry point may have been off.Fast rise,maybe!False start,happens all the time.Distribution,we think were in the money.Markdown,we forgot our uptrend line and didn't bail out.We just knew it was going to turn around all the way to the bottom.I have been there.Its like staying on a slot while your winning and walking away with nothing.Now for Fundamentals!There is no simple formula.You can go to the net and look up things about a company that interest you,but you have to seperate the truth from the hype,by looking at all things.The charts ofcourse tell most of it.There is so much information avaiable,much of it foward looking statements by the Co.which cannot be relied upon but of some value,you just have to sort through it.Even earnings must be treated as only temporary in the big picture.Judgement it would seem is the best answer.Based on years of experience of dealing with such things.I have a long way to go.Another good source is annual reports. Just send a post card and they will send you there report free.This also requires sorting of info.If you can do this type of work you will get a feel for fundamentals.Keep hitting the books and charts