Introduction To The Position Size Calculator
Our position size calculator is an useful tool for traders seeking to manage their risk and calculate their position size so they don’t suffer too much drawdown or risk blowing up their account.
Position sizing is one of the most important skills for traders to master early, because without correct position sizing and risk management, traders don’t survive for very long in the markets!
By using our position size calculator, you can determine the number of shares to buy for each trade, ensuring you adhere to your risk management rules.
Our calculator offers three position size models:
- Percent of Equity Position Sizing
- Percent Risk Position Sizing
- Percent Volatility Position Sizing
These models enable traders to tailor their position sizing based on their unique trading styles and risk tolerance.
In addition to giving you this useful trading calculator, we will also discuss how to use the position size calculator and the inputs you need for each of the three position sizing models. Further information is also available in our detailed position sizing article.
The position size calculator is fairly self explanatory, so you can just jump in and use it now, or if you want additional details please continue reading below before using this trading calculator.
The Position Size Calculator
Three Powerful Position Sizing Models
The position size calculator allows you to size your trading positions using three powerful models:
Percent of Equity Position Sizing
This model calculates your position size based on a fixed percentage of your total account equity. The calculation works by multiplying the total equity by the percent risk per trade to determine the trade size in dollars. You then divide the dollar trade size by the current stock price to determine the number of shares to buy.
The advantage of this model is that your exposure is normalised across all trades. This means that your catastrophic risk is normalised across all trades so no individual trade should cause you a large loss at your account level. It does not, however, take into account differences in volatility between positions. Percent of equity position sizing is ideal for traders who want to maintain a consistent level of exposure across all trades to best mitigate catastrophic stock specific risk.
Percent Risk Position Sizing
The percent risk position sizing model calculates position size by risking a fixed percentage of your account equity on each trade. This works by first calculating the dollar amount of risk you want to take on, then it calculates the risk per share by calculating the difference between the entry price and the stop-loss level. The number of shares to buy is then calculated by dividing the dollar risk per trade by the risk per share.
The advantage of this position sizing model is it normalises the ordinary trade risk across all of your positions. The disadvantage of this position sizing model is that if you have a tight stop loss, the percent risk position sizing model can give you very large trade sizes. This can expose you to excessive catastrophic stock specific risk.
Percent Volatility Position Sizing
This model adjusts position size based on the stock’s volatility, measured by the Average True Range (ATR). The theory is that if you normalize all positions according to their volatility, then each position should impact your portfolio in a similar dollar magnitude. This of course assumes that volatility remains constant for the life of the trade… which it clearly does not!
The calculation uses the target percent volatility provided by you and multiplies it by the current capital to get the target dollar volatility for the position. It then divides this target dollar volatility by the Average True Range of the stock to determine the number of shares to purchase. The dollar value of the position size is calculated by multiplying the number of shares by the current stock price.
Percent volatility position sizing is perfect for traders who want to adapt their position sizing to volatility of the stocks they are trading so the daily dollar fluctuations of each trade in the portfolio tends to be the same.
Achieve Consistent Trading Results with Our Position Size Calculator
Using our position size calculator ensures that you maintain proper risk management and drastically improves your chance of achieving consistent trading results (Especially if you follow our position sizing guidelines). Select the the most suitable position sizing model for your trading strategy based on your trading goals and use the position size calculator to find your trade size. Our calculator is user-friendly and adaptable, making it a helpful tool for traders, especially when you are just starting out with position sizing calculations. Incorporating our position size calculator into your trading toolkit today!
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