Now that the LinkedIn (LNKD) trade is off the ground, here’s how to establish an appropriate risk..
Discussed in this article: LinkedIn ( $LNKD )
Just a quick follow up on LinkedIn ( $LNKD LinkedIn Corp ). The stocks up over two percent today. I was talking about buying this yesterday using this prior level as support, so let’s just go ahead and set up that trade so you can follow this.
The low is $173.72 so a good place to set your stop is $173.72, you know what? Lets us just set it $173.52, something like that. The bottom line is you just want to have a stop, and you want that stop to reflect your opinion that the stock is moving higher from here, and that this is the low right there. You will know if you’re wrong if this low is surpassed and the stock moves lower from there.
So how do you determine your position size? Okay let’s just use mental math and we’ll go the easy way; $180.00 verses $173.00. Okay that’s seven points, so for each share of stock that you own you’re risking $7.00; so you own a hundred shares you’re risking $700.00. Whatever the number is you just need to know what it is. So if, for example, you decide you’re going to buy a hundred shares, well that’s going to cost you $18,000.00, so you need to look at a percentage of your portfolio. Is $18,000.00 an acceptable percentage of your portfolio to have in one stock? Okay, if it is fine.
Your down side is $7.00 right? So that means that on an $18,000.00 investment is it okay for you to lose $700.00? I don’t have the answer to that question; you just need to have it. These are the types of little things that you need to do in order to manage your risk properly. If you don’t know what your worst-case scenario risk is then you’re not trading like you should be trading.