Position size management - Tom Basso [Review]

When you read about the fact that the book is legendary Tom Basso it concerns only and only choosing the size of the position that a trader can open on the market, initially it is hard to believe. The biggest investors usually use every topic to smuggle their more or less meaningful golden thoughts on every topic. This time, however, it is different: Tom Basso wrote almost 100 pages exclusively about managing the size of the item and you never get bored while reading.

Yes, the whole book is about picking the right item size. And although many - especially beginner traders - consider it a cliché, it is not so obvious. Why? If only because the position cannot only be too big. If it is too small, it is also detrimental to the trader. 

“When positions are too large, a person becomes over-excited, frustrated, excited and ultimately exhausted by observing dynamic changes in prices. On the other hand, too small an item size results in a lack of interest, boredom, and sloppy. Therefore, both cases lead to a decrease in the expected rates of return " - we read in the book by Tom Basso. 

Risk is good, bankruptcy is not

The author writes a lot about risk in one transaction. It is usually found that the maximum assumed loss, i.e. Stop Loss order should not exceed 1% of the capital per transaction. Tom Basso goes even further, but on the defensive. Beginners are offered a risk of only 0,5% of their capital per position and open up to 20 different positions (which in turn is considered very risky). 

In fact, in every chapter we find a reference to one of the most important principles of successful trading: capital protection. The author admits that when he has a choice of two similar investments, he always chooses the more cautious one, even if there are many indications that he will earn less on it. The key, however, is finding the right balance.

“High risk increases the likelihood of bankruptcy, but also significantly tests discipline and coping skills. On the other hand, a small risk results in greater stability, but limits the rates of return and can cause boredom " - writes Tom Basso. 

Is a sale a profit? No, reducing the risk

An interesting approach is also presented in relation to closing positions that are profitable. According to the author, position management does not end with the optimal selection of TP and SL to the capital held and the assumed risk when opening it. It must be controlled all the time - especially if we decide, for example, on a rolling SL

“If you have an open position and your risk and volatility increase, you can reduce the size to control your exposure. I would describe such a situation as a position management process, not a staged profit taking. Perhaps this is a small, almost meticulous difference, but I was keen to point out to new traders the distinction between the two approaches. "

Tom Basso works 30 minutes a day

You can agree or disagree with the author, but the numbers are definitely in his favor. He has been retired for 15 years because he has decided that 30 minutes of work a day is enough for him.

“I look at the markets 30 minutes after the close of the session. Then I update the positions and make any changes to the portfolio. " - admits Tom Basso. The rest of the time, as he himself admits, is devoted to more interesting activities: he dances, plays golf, exercises, likes cooking and traveling. 

He started investing at the age of 12, when he invested the money earned from delivering newspapers in units of an investment fund. 

He was one of the heroes of Jack Schwager's book "Wizards of the Market", gaining a nickname "Mr. Peaceful"because he never got excited about market fluctuations thanks to his faith in his strategy. He was the founder of the Trendstat Capital Management investment company. He is the author of books "Panic-Proof Investing" and "The Frustrated Investor", a former board member of the National Futures Association.