Useful Hints (03) - Determining Appropriate Position Sizing

This is and has been always one of the most difficult parts for me to challenge. Some thoughts on how to get better at it.

You may have experienced the same. After you had some winning trades, somehow it feels normal for you to take bigger bets in your next trade (meaning to invest a bigger %-Size of your PF). On the contrary, after you lost some money in a trade, you will take smaller bets in your next trade.

Emotions are not good Investors

This behaviour is absolutely irrational and actually purely emotional. I have lost quite some money and opportunities because of that. And it still happens to me to be honest.

And here it is why it is a problem and why you should decide your investment size as objectively as possible. Imagine you have lost some trades and you stumble across a big winner (let it be a meme coin, or a fundamental strong project). Its clear that you dont know that it will be a big winner. But, if you would decide your bet size based on some objective facts, you would make sure to bet the rationally best possible percentage of your portfolio.

If you take an emotional decision based on your last trades that went wrong, you will misjudge the current opportunity and leave money on the table so to speak.

Now, how can we become more rational traders/investors when deciding the investment size? First of all use this sheet created by Resdegen:

It will help you to decide your bet size based on some objective facts and not depending on your emotions and your last trades.

What is big and what is small?

Let’s say for example you did a lot of research and found a strong project very early and you have a good feeling, that it should be valued way higher than it is currently. You should bet a bigger size of your PF on it.

If you stumble on a project that is shilled all over CT but seems still undervalued, you should bet small.

Now you may ask, what is big and what is small? Well it depends on your PF size. Let’s say our crypto portfolio is in total $30.000. I would invest 10-20% of the PF, so $3000-$6000 in a project, in which you are very early and have very high conviction. A project with low conviction and which is shilled all over CT, I would actually not invest at all or if so only like $1000 with the given PF size.

You need to take risk, if you want to make profit.

Another mistake that beginner make is, that they compare the investment money with their “real” money when deciding investment size. Like you are thinking for example how much rent you pay and than think, hmm I will invest half of my rent in that token, e.g. $700 (although you have a dedicated PF of $30.000). This is also to avoid, use purely the above sheet and maybe in addition your gut feeling/experience but nothing else to decide how big to bet. Investment money is not the same as “real” money you could say.

Also, it really depends how big your PF is to decide how much risk to take. Take a look at this overview (Source @PaikCapital):

I like it, because it shows you that if you have a small PF you need to take more aggressively profits and secure your gains. Like if you have a PF of $10.000, you might wanna invest $2.000 in a solid small cap project (2-5 Mio. Mcap) and sell all after 2x or 3x. This way you can grow your PF fast. To find the right projects is another story, but I might do an article in the future about this topic.

Thats it guys and girls, let me know how you decide your PF size and if you have similar experiences or strategies in the comments.