A Practical Guide to Our Position Sizing & Execution Protocol

Written By MomentumX Capital

Last updated 6 months ago

This guide outlines the disciplined, risk-managed process we use for capital deployment. A signal is only the starting point; a systematic execution plan is what generates consistent returns.

A Note on Strategy Application

The 40-40-20 Protocol detailed below is our primary method for scaling into new positions, particularly for our core "Base & Catalyst" strategy. However, investing is dynamic. We may make exceptions and adjust this protocol based on the unique risk profile and potential of a specific opportunity. Any deviations will be clearly noted in the Status / Action column of the positions table.

The 40-40-20 Scale-In Method

Our entry protocol is structured in three tranches to manage risk while capitalizing on confirmed strength.

  • Phase 1: Initial Entry (40% of Position Size)

    • Action: Deploy the first 40% of your planned capital upon receiving a valid buy signal.

    • Rationale: This initial tranche establishes a position while keeping risk minimal as the thesis develops. A stop-loss is set immediately based on the chart's technical structure.

  • Phase 2: Confirmation Entry (40% of Position Size)

    • Action: Deploy the next 40% after the market confirms the move (e.g., a successful retest of a breakout level).

    • Rationale: We add capital only after receiving evidence that our initial thesis is correct. The stop-loss is then adjusted (often to breakeven) to manage risk on the larger position.

  • Phase 3: Trend Entry (20% of Position Size)

    • Action: Deploy the final 20% once a clear, established uptrend is in motion.

    • Rationale: This final tranche is deployed into proven strength, allowing us to maximize our exposure to the most profitable part of a trend.

Portfolio Construction: A Practical Example

We recommend a focused portfolio of 6-10 high-conviction positions.

Scenario: A $25,000 portfolio targeting 10 positions.

  1. Define Full Position Size: Each position will have a maximum allocation of 10%.

    • Full Position Size = $25,000 x 10% = $2,500

  2. Calculate Initial Deployment (Tranche 1): The first entry is 40% of the full position size.

    • Initial Deployment = $2,500 x 40% = $1,000

    • This initial trade risks only 4% of the total portfolio ($1,000 / $25,000), demonstrating how the protocol controls risk from the very first step.

How to Read the Positions Table - The Flight Deck

The positions table is your actionable flight plan. It is the practical application of our strategy, designed to be read and acted upon with clarity.

  • Entry, Stop SL, Exit Target: These define the parameters for each trade. The Entry is the initiation price, the Stop SL is our pre-defined risk limit, and the Exit Target is our objective.

  • Pos Size %: The total intended allocation for a position once all three tranches are deployed.

  • % Cap (Capital at Risk): The single most important risk metric. This shows the actual percentage of your total portfolio you stand to lose if a trade hits its stop-loss.

  • R:R (Risk:Reward Ratio): Quantifies the asymmetry of the trade, showing the potential reward for every dollar of risk taken.

  • Status / Action: Your direct instruction. This column tells you precisely what to do: initiate a new buy, scale an existing position, adjust a stop-loss, or hold.

  • Scaling in Plan (40% | 40% | 20%): A visual tracker of our protocol. A green block indicates a tranche is active; a grey block indicates capital is awaiting a confirmation signal.

Note: This protocol is primarily applied to the Base & Catalyst strategy, we can make exceptions depending of the level of risk and potential of a given position.