The Question I Wish More Traders Asked Before “What Should I Buy?”
Authored by: Terence Scott
People find out I have been trading since 1999 and the first thing they ask is what I am buying. It is the wrong opening question, and I say that as someone who spent his first few years asking it.
The question that actually decides outcomes is how much. Size, not selection. A good idea in a position that is too large can take an account apart. A mediocre idea in a sensible position is a bad week you barely remember. Same analysis, completely different consequence, and the only thing that changed was a number you fully control.
That last part is worth sitting with. You do not control whether a company beats earnings. You do not control a rate decision, a downgrade, or a headline that lands at three in the morning. You do control how much of your capital is exposed when any of it happens.
What the 2000 unwind actually taught me
I learned this the slow way. In 1999 and 2000 I held a handful of technology names in sizes that only made sense if I was right. When the Nasdaq peaked in March 2000 and rolled over, being right eventually did not help me, because the positions were large enough that I could not sit through the drawdown calmly. I made decisions under pressure that I would never have made with less on the line. The lesson was not that technology is risky. It was that position size sets your emotional bandwidth, and emotional bandwidth sets the quality of every decision that comes after.
Three habits I have kept for 25 years
Write the exit before the entry. Before anything goes on, I write down what would prove me wrong. Not a price I hope to sell at. The price or the condition that says the reason I bought no longer exists. If I cannot put that in a sentence, I do not have a thesis. I have an opinion.
Size to volatility, not to conviction. Conviction is a feeling. Volatility is measurable. A stock that moves four percent a day and a stock that moves one percent a day are not the same instrument, even at the same dollar amount. Cboe publishes the VIX as a public read on expected S&P 500 volatility, and average true range does the same job at the level of an individual name. When those numbers rise, my position size comes down. The rule is mechanical, which is the entire point of having it.
Check what your positions have in common. Owning eight names feels diversified. Owning eight names that all depend on the same rate path, the same supply chain, or the same capital spending cycle is one position wearing eight tickers. The SEC covers the basic idea in its guide to asset allocation, and it is where a lot of portfolios quietly concentrate without anyone consciously deciding to.
Why I moved the rules into software
I am a software developer as well as a trader, and building market tools changed how I treat my own rules. A rule you have to remember is a rule you will skip on the day it matters most, because that is the day you are stressed, distracted, or convinced this time is different.
So I stopped relying on memory. Alerts when volatility shifts on something I hold. Screens that flag when a watchlist is quietly clustering into one theme. The invalidation level attached to the position itself rather than living in my head. Automating a check is not the same as removing judgment. The judgment goes in earlier, while you are calm, and the software simply refuses to let you renegotiate with yourself at the worst possible moment.
The takeaway
If you take one thing from this, spend less time refining what to buy and more time deciding how much, and write both answers down before you act. Selection determines whether you are right. Sizing determines whether being right ever gets the chance to matter.
None of this is a shortcut, and I am not offering one. Markets do not owe anyone an outcome. What sizing discipline buys you is the ability to stay in the game long enough to keep learning, and over 25 years that has mattered to me far more than any single call I got right.
Author bio: Terence Scott is the founder and CEO of StockMarketWatch.com and has traded stocks, options, and futures since 1999. https://stockmarketwatch.com