Volatile stocks obviously move more, so a lower-than-average position size adjusts for that high beta. For instance, CME has moved 11.8 points on a daily basis over the past month (approximately 4%), while Microsoft (MSFT) has moved 0.57 points over the same time (approximately 2%).

Position sizes should be adjusted to account for the higher (or lower) beta of individual stocks. For example, a stock with volatility similar to that of the overall market can be allocated your standard position size, and one with twice the market volatility can be allocated half your standard position size.

This also drives another important benefit: Financial staying power, so your (fixed dollar, loss-driven) stops don't get hit due to the volatility of the security.

Ultras like SDS, SSO, QID, QLD, FAS,  FAZ, and so on are by design more volatile, and hence require smaller positions.

This metric has changed over the years to reflect the increase in the account size. Based on that starting point, I adjust my positions lower (or higher) for several scenarios. For example, with regard to the volatility of individual positions.

Now the question arises as to how much trading capital should be allocated to each security. Well, there's no standard answer: Your risk profile and the total account size are important determinants. The allotment could range from 2-10%. It would be tough to divide a $100,000 portfolio into 50 positions, whereas 50 might be the "right" number for a $5 million portfolio.

Here’s what Van Tharp had to say about it:“If you are risking over 3% of your trading capital then you are a 'gunslinger,' and had better understand the risk you are taking for the reward you seek."

Of course he's referring to “capital at risk” -- which isn't your entire position size, of course, but has to do with a combination of intended stop-loss and overall risk in a given security (for example, a small biotech stock could have much greater risk than your intended stop-loss, due to the risk of a large gap down driven by news of its key drug).

Also, personal trading style and preferences have to be taken into account. Some might be able to manage a lot more positions than others, while others might find it difficult to keep track of over 15 positions -- if so, they need to ask the third question.