Stock Tips From ChrisPerruna.com

As I've started getting a handle on my CANSLIM investing strategy, one site that I refer to often to get stock tips is chrisperruna.com. Periodically, I check out his site for new articles. He wrote a very interesting article today that compared poker to trading and was a very good lesson on how to trade profitably. One of the concepts he talks about from time to time is position sizing. Position sizing refers to how much money you invest in a certain trade. When faced with a new stock buying opportunity, he explains that it's important to limit your risk by only committing a certain percentage of your funds to each trade. I think the tendency for many investors is to risk to much money on an individual trade because their investment accounts are underfunded for what they are trying to do.

As an example compared to poker and the casinos, I'd compare position sizing to the table limits at games like craps and blackjack. Sometimes table limits are low, like $5 and other times, they are high at $25 or more. The effect of this to a gambler is that he is risking too much money at one time and the house will clean him out quicker. Casinos know this and when the place is busy, you'll notice these limits rise. I've noticed they also rise when they are in need of more money.

In the stock market, the table limits are the amount you choose to invest in relationship to your trading account. If you have $500 hundred dollars in your account and you invest that same $500 dollars in the market, you are 100% at risk. It won't take too many losses before you are wiped out. Conversely, if you have $50,000 and you invest the same $500, you can still invest $500 ninety nine more times. Because you can invest more often, you can stay in the market longer and make more trades.

Your chances of winning at stock market investing depend on your ability to select winning stocks and time your buys. While it is possible that you can start small and increase your trading funds, it's a lot harder for the guy with a lot more at risk each time he buys shares because he can't absorb very many losses and since he's probably a risky trader, he'll probably be more likely to let it ride and be undisciplined.

In my opinion, the market counts on this and some how they know how to exploit it.

If you are a small investor, what should you do then?

Well, that's a tough one because the market can outlast you. I think the first thing you have to realize is that if you choose to invest more than you should place in the market at one time, you must realize your expectancy or chances of winning go down considerably over the long term every time you put all of your money in.

The first choice is to grow your investment account to a size that you can afford to position size the right way before you commit any money. The second choice if you choose to invest in individual stocks underfunded, you'll need to replenish your account more often and be a lot luckier.

You can read more stock tips at chrisperruna.com.