Size Does Matter After All
Posted August 27, 2021
“Size matters,” he told me. I had no idea what he was trying to say.
This morning, I was talking to a day trader friend over coffee.
I brought up a company called Novocure.
Novocure is working on cancer therapy using electric fields to disrupt cancer cell division.
(I’ve been interested in this concept since reading the highly controversial book, The Body Electric.)
Its clinical trials -- ranging from brain metastasis to ovarian cancer -- seem pretty far along.
And, at the moment, its stock is on a downward trend.
Because I’m interested in how traders think about the markets, we were talking about a hypothetical best entry point.
When to Get In
“Biotech equals super high risk,” my friend said.
“Quick glance, I see downward trend lines. Look for a break in the trend line with a daily close above the $139, and then confirmation with a daily closure above $160. That’s the only way to tell with confidence that the downward trend has reversed and the bull is back on.”
He showed me this chart:
And then, he got super technical.
My eyes glazed over a bit.
“Makes sense,” I said. (Some of it didn’t. But it was too early for a masterclass on advanced Moving Average Convergence Divergence.)
The next question I had:
“OK. In that case, how much would you risk?”
He got even more technical, throwing out all kinds of jargon.
There were only two sentences I fully understood: “It depends on the rest of your portfolio. Size matters.”
For him, it’s second nature. For me, it’s like learning Aramaic.
There’s an Easier Way
Having pros on hand is great. But the pros aren’t always on-call. And when they are, they aren’t cheap.
And even when you pay them, there’s no guarantee you’re going to understand them.
That’s why we’ve recently embraced a software solution called Tradesmith.
It’s like having a pro trader on-call to protect and maximize your portfolio, even while you’re away.
Not only will Tradesmith automatically show me the best times to get in (and out)...
But it will also show me how much to put in based on my portfolio.
For example, Tradesmith offers an easy-to-use Position Size Calculator.
For the sake of simplicity, let’s say I’m willing to risk losing $1,000 in NVCR.
Let’s also say Tradesmith’s volatility calculator tells me that NVCR has a VQ (Volatility Quotient) of 50%.
That’s super risky.
So, if I’m willing to risk $1,000 on this stock… Tradesmith will say the absolute max I should put into this stock is $2,000.
This is great to know.
But there’s something else...
I also need to balance this trade against my current portfolio, making sure I’m not leaning too heavily into high volatility stocks.
What you invest in matters. But the size of your positions matters just as much.
As Keith Kaplan, CEO of Tradesmith explained: “Your position size matters a LOT. Don’t get it wrong. Don’t buy too much of a risky stock and not enough of a low-risk stock. You must find (and keep!) the right blend to maximize your potential gains while lowering your risk.”
That’s just scratching the surface. There’s a whole lot more you can do with this software.
That’s why, on August 31, during a special event, Keith is going to show us everything.
And you’re invited.
→ One small change you should make to your portfolio that could 3X the gains of any of our editor’s picks -- James Altucher, George Gilder, Graham Summers, etc. -- or any other stock you own… without options, leverage, or exotic trades…
→ A strategy for potentially increasing the frequency of your wins - this could also help you keep more of your gains…
→ Why a Nobel-prize winning discovery explains investor behavior down to a T -- knowing this could instantly change how you trade…
→ The #1 profit-killing mistake almost every investor makes and how to overcome it -- you’re probably doing this already and don’t even know it…
→ And how you could get ahead of a market crash or correction to save your portfolio - Keith personally did this before the COVID crash and saved his nest egg...
Managing editor, Laissez Faire Today