Let us analyze the following:
The date is February 13, 2013. Trader 1 has a daily buy signal on the RUT at around 910. The weekly signal is also on a buy. Trader 1 believes strongly in the continuation of that weekly uptrend, and her target is 950 RUT area, however, she understands that the daily chart is getting very overbought and is cautious about this. Trader 1 expects to be close to her targets within 4 weeks.
Trader 1 has the following parameters with regard to position sizing.
1 TF Contract = 910 X 100 = $91,000 = (A 25% Position)
2 TF Contract = 910 X 100 x 2 =$182,000 = (A 50% Position)
3 TF Contract = 910 X 100 x 3= $273,000 = (A 75% Position)
4 TF Contract = 910 X 100 x 4 = $364,000 = (A 100% Position)
Here on February 13, 2013 Trader 1 wants to allocate a 50% position size toward her idea. Ideally, she would buy 2 TF contracts, however she is concerned about March 7, 2013 rollover. She feels that she can manage potential drawdown here, as she is confident in her weekly thesis, but the rollover is an additional obstacle which needs planning. What if she is involved in a large drawdown near rollover and still confident in the weekly thesis? Not only will she have to manage her position both actually and psychologically during the potential drawdown, but also the rollover will have to be managed.
So what does she do? What is her best option?
A.) Buy 2 March TF contracts
B.) Buy 2 June TF contracts (but remember that on Feb 13, 2013, the June has almost 0 volume, but assuming she could get a reasonable fill)
C.) Buy 2 June ES contract (more volume, easier to get a fill on Feb 13, but Trader 1 is not an ES trader)
D.) Buy 1500 TNA @ $40 (but this is pushing her margin in equities account, plus some do not like to hold leveraged ETF that long)
E.) Buy 2000 IWM @$91 (but assume that she has another position or 2 in her equities account and will have to liquidate them to get the $182,000 margin clear, plus she won't be able to add to the position)
Given Trader 1's circumstances how does she execute and manage her position.
How would YOU execute and manage this idea? Opinions wanted and please incorporate the facts of what actually happened in the market after Feb.13, 2013 into your ideas and data, as this is one reason I chose this fact pattern.
Edited by viccarter, 22 June 2013 - 11:07 AM.