Trading Size Matters - Know Thyself

Too much of anything large can hurt; and in the world of trading, too much of one thing can indeed become your undoing.

Size does matter because in gaining weight and dimension one often sacrifices speed and agility; a quality of paramount importance in the world of trading.

Let us look at an example in terms of Military History. As my blog evolves the one thing my readers will often notice is that I will draw upon several examples within the context of warfare since I liken the arena of trading very much to that of a battlefield! And we may choose to learn the basics of the fog of war or perish through our own undoing of lack of preparation.

In ancient Rome on 2 August 216 B, two mighty civilizations came to head with a clash that was looming with the growth of the worlds of Rome and Carthage. On the fields of Cannae

http://en.wikipedia.org/wiki/Battle_of_Cannae

86,000 Roman soldiers came face to face with the oncoming Hannibal marching at the head of a mere 50,000 troops. Not that this was a mismatch as much as a fight between a monkey an a gorilla, but Hannibal's infantry was as much as one half of the size of the Roman force. The result was probably one of the most stunning victories for Hannibal and one of the greatest battle in ancient history, for a Carthaginian force of half the opponents size, had manoeuvred to surround the entire Roman force of 8 legions strength.

http://en.wikipedia.org/wiki/Battle_of_Cannae

Conclusion - The Roman forces were so bound together that the sheer force of their numbers worked against them as they sacrificed mobility for choice of packed strength. And the Carthaginian force carried the day through the choice of speed and dexterity in feigning a formation to invite the Roman bulky center to meet it head on and allow itself thus to be outflanked!

For our purposes in the world of trading, if your account is at 100,000 USD strength, why are you trying to position yourself upon the field of battle with 10 soybeans futures contracts, with a possible initial margin of 20,000 USD when the possibilities of a change in wind and a retreat and rout are very realistic in a market notorious for rapid changes in sentiment?

Size does matter.

Opt for dexterity and not bulk and choose to move your positions as the winds of change spell out danger.

Do not be tempted like the Roman army to move in center with a strong headwind trend with the bulk of your forces. Keep your reserves strong and be prepared to use options on your flanks to defend your chosen position. Above all plan to retreat before you plan to march into the enemy, so that if ever a retreat becomes necessary, then you will do so in an organized fashion.

The heat of a battle can quickly turn out of your favor.

In the darkest hour Know Thyself!