The Dow/S&P is clearly trending lower, and fast approaching its head-and-shoulder neckline. Still, MA lines have not lined up nicely for a short. Once they line up, I will be shorting. The Dow seem to be weaker than the S&P, so I will be targetting the Dow. How much to short?
Looking at the trading lot size for both the Dow and S&P however, to short 1 unit of the Dow costs US$8,000+, while shorting 1 unit of S&P costs US$900+. Shorting the Dow is inconducive for risk management, and hence, I am left with the option of shorting the S&P.
If I short 2 lots of S&P, it will be US$1,800. 4 units costs US$3,600. So, definitely a manageable size. Say I get in 1 lot at 850, and my stop loss is 950, it's a loss of US$100, so 2 lots' stop loss is US$200. Therefore, I would say, my ideal position size would be to short 2 lots S&P.
Sunday, July 5, 2009
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