Know the Right Amount of Risk

Last week, TradeStops introduced its last major upgrade of 2016. Our development team upgraded the TradeStops Position Size Calculator to make it more user-friendly and to give you more information at a glance.

The Position Size calculator now lets you determine either how much risk you’re taking in a position based on your total investment or how much you should invest in a position based on the amount of risk you’re willing to take.

Let’s take a look.

The Position Size Calculator is in the same place as it was before. Just click on the “Research” tab and then on the “Position Size” tab. Here’s what the screen looks like.

 

(Click on image to enlarge.)Now let’s look at each section. For this example, we’ll use Facebook (FB). FB triggered an SSI Entry signal in April, 2014 and has been moving higher all this time, more than doubling in price. The most recent high on the stock was in October and the stock has moved a little lower in the past two months. It’s still a long way from its SSI Stop price of $103.70.

In the top section of the Position Size calculator, we’ll enter the symbol FB. The Entry Price box will automatically be filled in with the previous day’s closing price.

If we want to enter a different price, we can go in and change it manually. If we want to look at an option or if we want to consider a short position, all we have to do is click those boxes.

The middle section allows us to look at FB from two perspectives. First, let’s look at how many shares of FB we can buy if we know how much money we are willing to risk. Let’s assume that we are taking $1500 of risk in each stock. So, we’ll click on the “Risk” box, then we’ll select the “Custom” box, and we’ll enter $1500.

We’ll come back to the “Invest” box in a moment.

Now, let’s look at the bottom section. The Position Size calculator lets us look at different stops based the SSI Stop price, the VQ of the underlying stock, a percentage trailing stop of your choosing, or a set stop price. We’re going to look at the SSI Stop price. To do that, we just check the SSI box.

Then we press the “Calculate” button.

The analysis tells us that if we are willing to take $1500 of risk in FB, we can buy $10,610 of FB stock or 88 shares.

 

(Click on image to enlarge.)Now, let’s go back and change the entry on the middle section. If we know how much we want to invest, the Position Size calculator will let us know how much risk we’re taking in that investment.

In this case, we want to invest $15,000 in FB. How much risk will we be taking?

Now, when we press the “Calculate” button, we can see that if we were to invest $15,000 into FB, we’ll be taking $3329 of risk.

(Click on image to enlarge.)It’s that simple! We recommend that you take a few minutes to try this out and familiarize yourself with these new capabilities. The Position Size calculator can help you know exactly the right amount of money to invest in any new position, whether it’s a risky stock or a conservative stock.

Best wishes for a healthy, happy, and prosperous New Year with TradeStops.

Tom Meyer
Member Services