Trading, if looked at solely as the sum of its parts, is a game of numbers. It’s about price-points and currency, shares and volume, percentages and statistics – all numbers to be calculated for success.
Yes, trading is largely about numbers – but it’s also about behavior, thought patterns, and how people make the decisions that shape their portfolios. All of these factors, both quantifiable and intuitive, can shape and impact a trader’s portfolio for better or worse.
A common rookie mistake for new traders is to think the decision-making process ends with deciding which stock to purchase. They spend hours using every tool at their disposal – plus a healthy dose of intuition – to choose the perfect purchase. But there’s more to consider.
Knowing what to buy is only the first step of the process; you then have to decide how you’re going to invest. The importance of finding the ideal position sizing – or how much of your account you’re going to place into a stock’s purchase – is far too often overlooked, and can be vitally important in determining the success of your portfolio.
TradeStops’ new Position Size Calculator was designed to help take the guesswork out of knowing how to determine the position size that’s right for you. It factors in the level of risk you’re comfortable with, your account size, the stop price or percentage trailing stop you plan on using to give you the information you need to make an informed purchase.
Why is knowing the right position size important? Quite simply, it will help you maximize your returns on the investment.
For starters, the right position size helps you to create a balanced portfolio that’s in line with your account size. Too small a purchase will leave potential earnings on the table, while too large of a purchase can practically monopolize an account.
More importantly, however, the ideal position size will make you feel more comfortable with your investment, giving you the confidence to see it through. It helps you find the reward-to-risk ratio that meets your individual needs and comfort level.
The more comfortable and happy you are with your decisions, the more likely you are to feel confident about trusting your portfolio as a whole. This will give you the freedom and ability to make better, smarter trading decisions, helping you to, in the end, grow your assets – and your profits.
After all, trading is about far more than just numbers – but understanding the numbers is the key to successful trading.
The Position Size Calculator is one of the great new features that will be available with TradeStops 2.0, coming soon.