One big problem with my trading is the fear of commitment. I'd pass a lot of good trades every day, sometimes because I'm afraid of losing but very often it's simply the desire to be risk free. Using smaller size has definitely helped me breaking this barrier.
Since I opened my Virtual Trading Office in July, I kind of forced myself to enter trades more often. Because the account I report on is small with only $30000 capital, I'm more risk averse. At first I reduced size to 50 shares. Lately, however, I most often start with only 30 shares. Despite the much smaller size, I've had better performance. In the last 20 trading days, I averaged $75 a day. Had I not passed some good trades every day, the performance can easily be much better.
Lately, I've thought about the idea some more. Here're the benefits I see using small size.
First, it's a lot easier psychologically to enter a position with 30 shares. Even if the toad goes against you by $10, you only lose $300. With that kind of loss, you have almost nothing to fear but fear itself. So you're more likely to enter all the good trades, even shorting the super stupid stocks like CMG thus capturing the fast $2 you otherwise would have passed.
Second, it makes averaging-in workable. I like to trade counter trend. With this style, it's almost a certainty that the toads would go against you right away. If you're comfortable with 100 shares, then you have room to triple up your position when you start with 30 shares. I'm more patient now so I often do catch the top. However, frequently I still need to double up. Once in a while, I would have to triple up. But I don't have much fear with 100 shares. They can't kill you with 100 shares, as I used to say. Yesterday for example, I shorted the stupid BKR at $37.40 and doubled up at $38.09.
Third, you can be more liberal with stops. Once again, they just can't kill you with 30 shares, or 100. I have very low opinion of stops in the common sense. IMO, unless you entered in a very bad time, like shorting a bottom or buying a top, you are better off in the long run to forget about stops for most trades. Stocks go up and down. All the big losses I took over the years would have been gains a mere days later, usually just a day later. With 100 share position, it's easy to hold for that extra few days. I got stuck with the stupid TSCO a couple of days ago. Look where it is now.
Fourth, using small size might lead you to focus on bigger moves. How much money would you have made shorting 10 shares of SKF at $300? It dropped to $100 in about 10 days. And you would have made $2000 on a $3000 capital.
I did short 10 shares of SKF at $300, by the way. But I covered for $2.
And finally, even if you do get ambushed once in a while, you can trade your way out of trouble. Starting with 30 shares makes it like you have unlimited funds. Increasing your position to 300 shares is a tremendous "surge" in fire power which is likely to "shock and awe" your opponents.
With 30 shares at a time, in December I made $1535 on this small $30000 account. If I can do this consistently, it'd be $18000 a year. Sounds like a small living, no? Besides, on average, I only use about $6000 to $7000 capital each day.
