Overnight positions
Today I want to show you how I create overnight positions in trending stocks. Like in every investment you first have to choose an initial risk stop that doesn’t threaten your account, but unlike intraday trades it is important for overnight positions to stretch the trading range.
For example we choose Apple´s stock, and we want to trade it long. Our account is 100.000$ and AAPL currently trades at 190 $.
If we take a look at our account, we would be able to buy a maximum of around 525 stocks. But as we learned before (in this article) that would create a too high initial risk in our account. Instead we only use 1/3 of our account as our maximum position - which would be 170 AAPL shares.
Next thing before we buy, we calculate the range (or you could say the risk), we want to give our stock. For this I use the daily ATR. For AAPL it is currently 3.2$ per day. To create a wider range I double up on the ATR. We use a 6$ range for our stock to set the initial stop around 184$.
And now comes the main part: Position sizing!
To trade 170 AAPL shares with a 6$ risk would leave us with a 1020$ loss in a worst case scenario. This would fit in our 1% risk per day rule, but if we do this, all the risk we have available for today will be bet on this trade alone.
Unfortunately we don’t want to trade only one position a day. Plus we want to get into a trend, so it is not necessary to buy in with the maximum position size. To quote Jesse Livermore: “real movements do not end the day they start”
Best thing to do is to size down your initial position. Trade only 50 AAPL shares and upsize this position the coming days, with growing profits until you reach the size of 170. If AAPL goes against your initial position, you only lose 300$ and have enough risk left over to trade some other positions. This is to diversify your portfolio.
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Disclaimer: This site is for educational and informational purposes only. Nothing contained here should be construed by anyone as an invitation or solicitation to buy or sell any security. This site does not contain personalized legal, tax, investment, or financial advice. Users of this site should consult with a qualified adviser to obtain advice suited to their personal circumstances. Any links provided here to other web sites are for informational purposes only. We take no responsibility for the accuracy or content of linked sites.