From the outside, the last couple of months looked like easy money. I made two trades with gains pushing six figures…*
And one quantum stock that paid $98,039.*
Space and quantum were the hot sectors, and I was long the names the crowd was chasing.
I also printed $80,789 gains on Virgin Galactic Holdings, Inc. (NASDAQ: SPCE).* I laid out my case for it last week (the dumb-money trade where retail keeps buying Virgin Galactic, looking for SpaceX).
And rose the quantum hype on QTREX Quantum Ltd. (NASDAQ: QTEX) for another $98,039.*
Beautiful.
But it didn’t start there. A month before those wins, I took an absolutely brutal loss…
So bad.
I make mistakes too. But I don’t move on from a loss until I know exactly why it happened.
Did I break my rules? Misread a chart? Get in at the wrong time?
After losing nearly half a million on one trade, I stepped back and pulled my whole process apart.
CAR was only down 5%. A loss that small should never cost that much … it only did because I was sized way too big.
A month later, the work on my sizing has shown up as the green I listed up top.
That one loss was bigger than both winners combined. One mis-sized trade can undo months of good ones.
I can show you how I make the six-figure gains.
But that’s less important than how I handle my mistakes.
Let me show you how I could have avoided the six-figure loss.
How To Size Your Trades
The trade itself wasn’t the mistake. CAR dropped about 5%, and a 5% move is nothing. It happens on any random day, in any name, to every position you will ever hold.
The mistake was that I was holding almost $9 million of it.
At that size, every 1% move is roughly $90,000. So a normal little dip didn’t cost me a normal amount. It cost me $458,739.
Read that again. Nearly half a million dollars, and the stock barely moved. The damage was sitting in my share count the whole time.
So here is how you avoid it.
Before you enter, you decide the most you are willing to lose on the trade. Not the most you hope to make. The most you can lose and still sleep, still trade tomorrow, still think clearly.
Then you size backward from that number. Take the dollars you are willing to lose, and divide by the distance between your entry and your stop. That gives you your share count. Let that set your size, and nothing else.
If I had held a tenth of that CAR position, the exact same 5% move costs me around $45,000. A rough day. Not a hole I had to climb out of for a month.
You don’t control whether a trade goes against you. You only control how much it costs you when it does.
Size like the loss is coming, because eventually it is.
In the meantime, do everything you can to reduce the probability of taking that loss.
Stay sharp, Jack Kellogg
*Past performance does not indicate future results. Not Typical.
