The Position Size Calculator is a powerful tool you can use to research new stocks or help you decided the position size you should have in current holdings.
And it only takes three steps! Simply tell us…
- The position you wish to invest in.
- How much you are willing to risk or invest.
- What your exit strategy is.
NOTE: By “Risk”, we mean how much money you are willing to lose on this position, if things don’t work out as planned. Our definition of risk is not how much money you are investing on the position in total.
Instead of putting an equal amount of money into each position this tool will show you how to take an equal amount of risk on each position.
Let’s review how to use the Position Size Calculator to make you into a more powerful investor.
Accessing the Position Size Calculator
The Position Size Calculator can be accessed by taking the following steps:
- Click on the Research tab (1) in the main menu at the top of the page.
- Click on the Position Size (2) link in the submenu.
If you do not see the Position Size link for any reason, try refreshing your Internet Browser. That will make it appear again.
Choosing the Right Position Size
We’ll look at each section individually to show you how important this tool can be and how you can put it to work immediately.
In the first section, we are going to Identify the Position.
- Select the equity type by clicking on the appropriate button – Stock/Index/Fund or Option (1).
- Enter the symbol of the equity of interest (2).
- Enter the Entry Price per share (3), or price you expect to pay to purchase the position.
- Choose whether the position will be Long or Short (4).
For the second section, the amount that we are entering is the amount of money we are willing to lose on this trade.
- Choose to analyze by risk (5) and select the risk amount (6) or enter a custom amount.
Now comes the fun part. This is where we determine how many shares we can buy of a position.
We have several choices so let’s see how each decision we make determines how many shares we can buy.
- Click to select your exit strategy (7).
- The default decision is to use the Volatility Quotient (VQ) as our trailing stop loss. The Volatility Quotient represents how risky your stock is based on market performance. You can read about the VQ here.
- The second choice allows you to enter a percentage-based trailing stop. You are free to choose the percentage you want to use. For example, you can use a 25% trailing stop, which is the standard in many financial publications.
- The third option is to choose the price that you want to use as your stop.
- The last option is to use the Stock State Indicator (SSI). The SSI acts as the lifecycle of your stock and conservatively tells you how the stock is performing in the market. This is based on the most recent high of the stock. You can read more about the SSI here.
- Click the Calculate button (8), and the results will display below.
- The first section shows you how much you can invest into this position, how many shares you can buy, and what your stop price would be.
- The second section gives you an explanation about the summary.
The results are broken into two sections:
This lets you quickly see whether this position would work well for you and if you would be comfortable investing in it.
This explanation can help you further understand your investment and the potential risk you would be taking on. If you are comfortable with this amount of risk, you could consider adding it to your portfolio. If the risk is too high, then you might want to consider not investing in the position.
Not ready to invest?
If you aren’t ready to invest, you can add this potential new investment to one of your manual portfolios. At the bottom of the results section, take note of the drop-down box.
You can use this box to pick a portfolio to add the new investment to. Just click on that downward pointing triangle, and all your manual portfolios will appear in a list. Select the portfolio that you like. Then, click the green Add button. The position, with that specific position sizing, will then be added to your portfolio.
From there, you can watch the investment. Without putting any money into it, you can see how this potential new investment would perform for you in the market.
Remember, manual positions can only be added to manual portfolios. They cannot be added to any of your synced broker portfolios. If you do decide to purchase the investment in the future, it will then show up in the synced portfolio and could be removed from the manual portfolio.
Try the Position Size Calculator Today
Warren Buffett is known for saying, “Risk comes from not knowing what you’re doing.”
With TradeStops, you can avoid unnecessary risk when position sizing. Our Position Size Calculator will show you, at a glance, the exact amount of risk you will take. You can know what you are doing with a potential new investment without risking a penny.
So… give the Position Size Calculator a try. Become a more powerful investor while making more and risking less,
Customer Success Team