How many shares should I take and what risk amount do I need to use?
The first question that needs to be answer is how much are you willing to loss
How much of your capital should you risk 1%, 2% 5% or even 10%? Then the question from what, you total portfolio or the money you invest in a trade. So let's me ask you a different question. Are you willing to loss on a trade100, 200 or a 1000 dollar?
Focus on this question “How much money am I convertible willing to losing if the trade goes against me”.
That’s quite different right
The system I gone explain can be used on anything from day trading to swing trading and it’s the only one I really understand. Now let’s move on.
NOTE before we go. Your risk amount in not the money that is needed to invest in a trade
Therefore you need 2 things.
Entry price – stop price = stop size (cent)
Then for calculating the amount of shares,
Divide your risk amount by the stop size (Risk / stop size)
Let’s assume your risk is $100,-
(Remember this is the amount of money your will to loss if your stop is hit)
You want to enter a stock at 10 dollar and you have a put your stop at 9,70
Then your stop size is 10 – 9,70 = 0,30 cent
Dividend then your risk by this number 100/0.30 = 333 shares this is the amount of shares I can take with a 30 cent stop.
If your risk was 500
$500/0,30 = 1666 shares
I know it is a lot of math however once you get the hang of it, it will be simple. And of course you can set it up before hand
Look at the image to the right this gives you a one look at how many shares you need to take with each stop size. You can easly make this with excel and then for each stop size you can calculate how many shares you can take.
he key in trading is to start small learn what works and what doesn't develop your own strategy and be consistence. Once you see that you are making profits and your confidence has grown you can increase your risk amount
Lastly you have to manage your trade you have to protect what you have made.