Stock Position Size Calculator For Pro Traders

If you have any money in the stock market you MUST know this one position size calculator for stocks equation.  

It has the power to turn even the worst investors profitable and break-even traders into money-making rock stars.

Check it out.

More...

Trading Isn't About Winning and Losing

Most believe that all you have to do to make money in the market is listen to analyst recommendations or breaking news and they'll be set for life.

They couldn't be more wrong!

When it comes investing and trading 95% of people have no clue what they're doing.  

For instance, trading really isn't about winning and losing.  

It's all about the RATIO of how much you make vs. the worst drawdown you can stand.

It's well known in professional circles that anything more than a 10% drawdown in a major hedge fund and clients get bitchy...to the point they call up and complain...

Now, my personal threshold for a drawdown is 25%. 

But only you can answer what your is drawdown threshold is.

You have to use REAL money to find out what your personal risk tolerance is.  Who would have thought?  

I guarantee you won't learn a thing by "paper trading."

Not even a certified "Financial Adviser" can answer that one (which is why I see no use for them in general.)

But I'm asked all the time how much of a stock or ETF to buy, which I can't answer. 

I can only guide you to two equations that I've found work well for me.

OK, so let's look at two ways to calculate position sizes for your trades... *cough*... remember I can't tell you which way to do it.

What's Wrong With the Popular Position Size Calculator?

It's LAZY!

Here's the popular and lame approach to making a position size calculator for stocks.

Simply divide your money evenly between your number of positions...*facepalm*. 

I'll use the example of ten here because I usually trade 10 different different positions simultaneously. 

Number of shares = ( account size ) / ( number of positions * stock's price )

Example: Number of shares = ( $50,000 ) ( 10 * $25 ) --> 200 shares

Notice that with your account size in the numerator, the number of shares bought will increase or decrease based on your nest egg.  

This provides great compounding power, which you need to make a fortune.

You DON'T want to just keep buying 100 shares of something...the number needs to fluctuate based on your account size.

OK, that's simple enough.

Here's The Way Pros Make A Position Size Calculator

But first, as a quick thought exercise, would you have traded with more or less money back in 2008-2009 when things were bananas?

I hope you said less money.

This is something I've seen countless times in my career; people trading with too much money tend to lose it all.  

As a professional trader you MUST take into account one extra, but incredibly important piece of information:

Volatility (how much a stock is moving around)

You can measure a stock's volatility using average-true-range or "ATR" which can be found for free on most financial news websites (like FinViz), or you can calculate it yourself with a little computer code.

Try using this equation for starters:

ATR = average ( absolute_value ( close - close[1] ) , atr_Periods )

So now, knowing your stock's ATR, let's look at the way pros calculate how many shares to buy at any given point:

Number of shares = ( account size ) / ( number of positions * stock's price * stock’s ATR )

Notice that with ATR in the denominator, you buy more shares when the market is calm and less when the market is manic...

...because ATR is low in quiet times but high when things are going pear-shaped.

Also, note that with your account size in the numerator, you buy more shares as it grows, compounding it rapidly. 

It's a remarkably simple position size calculator for stocks, but it's the difference between massive success (the type of money that lasts for generations in your family) and driving your account to zero.

Conclusion: Use the Pro Position Size Calculator

  • You must know the risk you can handle, which only comes from trading with real money in real-time
  • Be a professional and treat your trading like a business
  • By measuring volatility with average true range you can make a position size calculator for stocks that is light years ahead of the crowd

About the Author

Hello! I'm Kurt the "Relaxed Trader" writing the stuff on this website. Feel free to ask me questions. I love talking to fellow traders that want to use computers to beat the stock market. Shoot me an email: Kurt@relaxedtrader.com

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