Bet size -Trading & Life

I had shared this yesterday,

The one thing that retail traders don't do which they should - vary bet size. Trade with as little as possible on 90% of trades. Trade with more only when the odds of being profitable are higher.

I got a bunch of responses saying, how do you know when the odds are higher, why call it bet-sizing, is it because it is gambling and more.

How to know when odds are higher?

The decision to trade should have multiple checkboxes, can’t just be one. Size has to be based on how many checkboxes a bet ticks. And this rule I think holds good not just for trading, but investing, business, & life.

Say your strategy is to buy or sell a stock every time the price crosses a Moving Avg. An easy way to improve this is to incorporate a slightly longer-term Avg for bet sizing. Say the 20MA gives a buy, but 50MA is bearish, buy just 1 share. If 50MA is also bullish, buy 2 shares.

Similarly, say you are investing based on fundamentals. Change the size of your investment based on the things you like. Say you like everything else but the promoters or corporate governance, reduce size. You like the company but not the sector prospects, reduce the size.

Or, if you are planning to risk 2 years & your entire career by taking a course specializing in a new industry, commit time and read a few things first. See if it interests you. The odds of succeeding are much higher when you build a career around something you love.

Trading isn’t just about trading stocks. We constantly take bets in all aspects of life. Taking as many bets while keeping bet size small until you come across bets with higher odds of winning & increasing size is a good way to improve odds of succeeding in trading & life.