Wednesday, March 26, 2008

How I calculate position size

I have tried a fixed size method, like 500 or 1000 shares per trade but it didn’t suit me. In fixed size system I knew my position size but I had to adjust my stop loss point with the size, so it made the stop loss point less logical. My new system allows me to put the stop loss in more logical point,(I mean above or below support or resistance). Support & resistance is the best weapon for day traders, I am certain that my stop loss will be more effective now.

Calculation:

For example I short a stock @ 39.75 that means that my stop loss will be above $40 for obvious reasons. As we know that $40 is a decade number so it can go back & test it. Now if I put my stop loss @ 39.85 this will add some lose to my account where price always test the round numbers. Assume I put the stop loss @ 40.10 & the amount I want to lose is $200, so the position size will be:
200/.35 = 571

No comments: