The Position Size Calculator is one of the under-utilized tools on TradeStops, but it should be one of your go-to tools when looking at potential investments.
There are a few moving parts to the Position Size Calculator so let’s look at all of them.
The first section is easy. Which stock are we going to choose? Just enter the ticker symbol and the default price will be yesterday’s closing price. If you want to use a different price, you can enter that in the “Entry Price” box.
For this example, we’re going to use Berkshire Hathaway Class B shares (BRK.B).
Here’s the most recent 1-year chart for BRK.B. You can see that it hit a near-term high of $177.28 on March 1st. The most recent closing price on June 16th was $170.48.
Once we’ve entered the stock, it’s time to determine how many shares we can buy. This can be done by entering the amount of money we’re willing to risk or the total amount of the investment. This is done in Section 2.
In this case, we’ve decided that we can risk $1000 on the stock.
The third section of the Position Size Calculator can cause confusion as there are four different choices for the stop loss strategies. There are many ways to calculate your risk point. Some of this is subtle and you may not need to worry about all of the different options at first.
You can easily get started sticking with the VQ% Stop and the SSI Stop Price.
The first choice, VQ%, uses the current Volatility Quotient of the stock based on the most recent closing price in section 1.
The second choice, TS%, allows you to choose the trailing stop percentage of your choice applied to the most recent closing price in section 1. You can enter this in the box that opens up underneath.
The third option is to set a fixed stop price and use that for your stop loss strategy. In this case, we’re setting a fixed stop price of $135.00.
And finally, we’re going to choose the last option which is to use the SSI Stop Price for our exit strategy. For most investors, this is probably the option that’s best to choose.
The current SSI Stop price on BRK.B is $156.49 which is based on the most recent high we saw from March 1st.
Now that we have our stop loss strategy chosen, we’ll click on the “Calculate” button at the bottom to see the results.
Here are the results using the SSI Stop Price of $156.49 as our determining factor. We can buy 71 shares of BRK.B. That’s because for each share we’re taking $14 of risk by using the SSI Stop as our exit strategy.
This number will be less if we use a full VQ. That’s because there is more risk in each share. Here are the results using the full VQ option we showed in the third section.
In this case, we can only buy 49 shares as we’re taking almost $20 risk per share by using the full VQ.
We highly recommend that you play around with this tool by using the different settings to understand what they mean.
Once you have your portfolio set and you know how much risk you’re taking with each position, it’s easy to consider new investments by using the Position Size Calculator.
Just enter the amount of risk you’re taking per position and you can see how much you can add of a new investment without changing the per-risk amount of your other investments.
If you have any questions, please contact our Customer Success team for further explanation.
Education Director, TradeStops