To The Moon

How much money to risk per trade:

Risk tolerance should fluctuate. I get questions all the time about "exactly how much do u risk per trade".

And I have to give the annoying non-answer of "it depends"...bc there's variables. It's nuanced.

5 buckets I use to determine level of risk:

- current environment

- relative strength of leaders

- $vix behavior

- breadth / participation

- macro backdrop

Here's each one with more detail:

Current environment:

- $SPDR S&P 500 ETF Trust(SPY)$ trend (up/down bias?...don't overcomplicate)

- spy, $Invesco QQQ(QQQ)$ relationship to key moving averages (above/below 50sma, 200sma?)

- btc behavior...use to gauge risk/speculation appetite (ex: relative weakness = risk off growth names)

- oil volatility (aggressive/volatile, or holding?)

- rates direction (10y ripping? etc)

Relative Strength of Leaders:

- thematic leaders (falling off or showing continued strength)

- strongest stocks (are the individual leaders from the past 3-6mo rolling over, or holding/flagging?)

- are leaders respecting key levels (prior key support)

- new leaders emerging or same names carrying (health rotation)

- how are leaders reacting to good/bad news? (shrugging off bad = strong)

- failed breakouts vs clean follow through

$Cboe Volatility Index(VIX)$ Behavior:

- elevated + over $20-$21?

- daily + weekly range (higher/lower than previous weekly ranges?)

- trending up/down?

- secondary behavior (big move up, then 1. slammed back down? or 2. holding higher prices?)

- unusual divergences (market up but vix not making new lows?)

- volatility clustering (multiple large ranges in a row = unstable envt)

Breadth:

- what % of sectors or stocks are participating in the move?

- being held up by just a few names? (ex: mag7 in '23)

- advancers vs decliners (consistent skew?)

- new highs vs new lows...expanding or contracting?

Macro Backdrop:

- what's going on in the world?

- wars / fighting?

- has the market been reactive to it?

- how quickly could it resolve (or get worse)?

- who's involved? (countries, people, groups)

- major events ahead (fed, cpi, elections)

- liquidity conditions

Yes I know that was a lot, but here's the TL;DR on position sizing + level of risk tolerance:

- a+ setup + clean environment (aka all of those ^ aligned) = size up

- mixed signals = smaller size

- choppy/conflicting signals = smallest size or sit out

- if you feel urgency/anxiety…size is probably too big

- the best traders swing hard when conditions are right...and sit out when they're fuzzy/bad.

This is probably one of those you want to bookmark and come back to.

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