The Position Size Calculator is a powerful tool you can use to research new stocks or help you decide the position size you should have in current or new 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.
Once you decide these three things, the Position Size Calculator will calculate the amount you can invest up to, in order to meet your risk tolerance. Taking the “Equal Risk” approach to investing along with determining the correct portfolio size will give you an added edge for financial success.
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.
NOTE: Dr. Smith’s default “equal-risk” system for position sizing uses the VQ% as the basis for all position sizes, even if another stop loss strategy is being used. Using VQ% as the basis for all position sizes ensures that more money is put into more conservative investments and less money is put into riskier investments. Subscribers are, of course, free to use the position size strategy of their choice.
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.
Determining your risk
Before you find your position size a good step is to determine your risk per position.
- Enter the symbol of the equity of interest (1).
- Entry Price will auto populate with the Latest Close Price
NOTE: you can only select Long when calculating the risk amount.
- Choose to calculate by investment amount (2) and select the amount (3) or custom to enter the amount you would like to invest.
NOTE: The exit Strategy is not here when calculating for investment amount. This is because currently it is defaulted to VQ.
- Click the Calculate button (4), and the results will display below.
- The Result section provides the details regarding how much you may be risking (1) based on the Volatility Quotient (2). It also provides the SSI Stop Loss (3) at which you would be stopped out.
- Additional details can be seen in the explanation, including the most recent high close, and high close date. If the position was stopped out by it’s SSI Stop Loss, the explanation will tell you what date that occurred and the price it stopped out at.
- Click the Add button (4) to add the position and the SSI Stop Loss alert to your portfolio in TradeStops (if applicable).
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 radio 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.
NOTE: If you are not sure, you can click the Get Quote button to pull in the latest closing price.
- 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 in the third section is to use the Volatility Quotient as our trailing stop loss. The Volatility Quotient represents the normal volatility of any stock or fund.
- 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 Stop Loss setting. This is based on the most recent high of the stock.
- Click the Calculate button (8), and the results will display below.
- Print Button will send the results to your printer or selected device (1).
- Review the Investable Amount (2) and number of shares (3) you can invest based on the information you entered, and the current stop price (4). This is the maximum investment amount based on your risk tolerance.
NOTE: You do not have to invest the full amount that is quoted here, but in order to keep within your risk tolerance, you should not invest more than this amount.
- If you would like to add the position to a designated manual portfolio, select the portfolio and click the Add button (5) to be taken to the Add Position page where you can save the position and the alert selected (optional). You don’t need to take this step if you are synchronizing with your online broker, as the position, once purchased at your broker, will import automatically.
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