Invest and Trade Profitably with Jon Johnson

What number of shares is a “partial position?” What number is a full position? Let’s say one stock is 10.00 or less and another is twenty or more.

August 30, 2000

Before buying specific stock and/or options positions, we always know first how much we want to invest. A partial position can mean one-half, one-third, etc., but in most situations we look at taking a whole or half position when we move into a stock or option. That does not mean we won’t invest more later even after we have completed our initial investment, but it is a good starting point. A full position would be the amount you want to put into that particular stock based on the amount of money available and considering the rest of your portfolio. For example, if you wanted to buy 500 shares of a certain stock but then decided to enter with a partial position, you could purchase 250 shares to start out, with the same going for options contracts if you were looking at options. The rest would be held until you were certain that the move you wanted the stock to make is actually occurring or, as we often do, at the first pullback after a solid break higher. The same goes for selling decisions. When a stock hits its target in an uptrending market, often we will sell half of the position, taking that gain, and then let the rest run with the market. That allows us to get even more return from the play, and we can even add to those shares later if the stock makes a good pullback and still looks ready for more. We can ride a stock higher in this way using ‘other peoples’ money’.

What would be instances when you might wish to enter with partial positions? Sometimes the market doesn’t look so hot but a stock makes the good move and breaks out of a nice pattern. Since three-fourths of stocks follow the market, the backdrop of a lackluster day can drag on such a stock despite the good performance. However, if the breakout looks strong, taking a partial position by buying half of the intended amount can be prudent until you can be sure the stock is going to follow through as expected. Further, volume may not have reached the target. Even on a day when the market is looking great, a stock can be making a good move but volume isn’t quite there yet. Perhaps the stock moves early in the day, within the first half hour, and you want to see it come back a bit then surge again on high volume. Taking a partial position gets you half in the door, even if volume waits until the next day to roll into the big numbers. Look to complete a position at the next good buy point, such as on a move up after a low-volume test of the breakout, or on a strong volume break over the next level of resistance.

This is also a good way to ‘test run’ some plays that look strong. You take partial positions in 2 or 3 stocks, then watch how they perform. When one shows itself as the leader, you can cash out the others and, on the next good entry point in the leader, put more money into that stock, thus focusing your investing on a leader stock as opposed to spreading it out like a mutual fund and having the laggards slow your returns.

A partial position is taken in any of those scenarios without regard to the price of the stock or option.

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