TRADE SIZE CALCULATOR ONLINE INSTRUCTION PAGE
Trade Size Calculator ~ Plus
Welcome to the trade size calculator ~ Plus help & instructions page!
The calculator is for Stocks, ETFs, Commodities, and futures. But if you want to try it for Forex you can, and we provide Forex information below. But test it first as some Forex markets are not compatible with the calculator, and therefore we make no claims it will work on Forex markets.
Please read these instructions in their entirety so you know how to use this software.
First of all, thanks for purchasing the Trade Size Calculator PC Software program! This program will assist you in becoming a better trader by calculating your maximum trade size for each trade.
Please take the time to read all of the instructions here so that you know how to properly use the Trade Size Calculator PC Software program. While we have made this program intuitive, there are also some important steps and procedures and definitions you will need to know, so please read these instructions closely.
We also recommend "A TRADER'S MONEY MANAGEMENT SYSTEM" by Bennett McDowell. In this book you will learn more about how to implement money management and risk control into your trading. You will also learn more about the "Risk of Ruin" and how to use "The Trader's Assistant" into your money management program.
I wish the best for each and every one of you, trade well and remember to use risk control on each and every trade.
Money Management Tool For Stocks, Commodities, & Forex Traders
Our calculator is easy to use and will help you maintain Appropriate risk control on every trade!
The Importance Of "Trade Size"!
We must always trade with the proper "Trade Size" from both a financial money management point of view and an emotional one as well. You will never know when a "drawn-down" period will occur so you must be ready for it to happen at all times. They may not happen that often, but when they do, be ready to handle them. You must be able to trade through these tough times which will and do occur in trading. If you stay within a 2% risk on each trade you will have a great chance of avoiding "risk-of-ruin." But if losing 2% five or six times in a row scares you, then you need to lower your risk even more ( under 2%) until you can emotionally feel good so you do not quit trading. Lowering your percent risk will automatically lower your "Trade Size." For day-traders, an alternate way of approaching this is to set a dollar limit on how much you are willing to lose each day and then stop trading for the day when that level is reached. However, if you can adjust your risk so that a number of consecutive losses don't exceed your daily loss limit, you have the best of both worlds. This is all part of the "art" of trading, since each trader may choose to handle this issue differently based on their beliefs.
Another concept is to realize that how you choose your stop-loss point is important in using our "Trade Size Calculator." In developing our trading system "Applied Reality Trading" stops are based on actual market activity and therefore represent inherent market volatility. Setting stops in this fashion takes into account market volatility and therefore exempts you from having to calculate or use the "Average True Range (ATR)" in determining trade size. If you do not set stops in accordance with market behavior, then you will need to determine an appropriate stop-loss point taking into consideration the "ATR" or volatility of the market you are trading. Doing this allows the market enough room for volatility based on its inherent volatility for your trade to potentially work.
Bennett McDowell's Money Management Risk Control Book
For a more comprehensive look at money management & risk control for active traders and investors, CLICK HERE and purchase Bennett book.
Instructions On Using “The Trade Size Calculator”
Download these helpful guides now since you will need to know information on "Point Values"
- General Instructions on 'Point Values": CLICK HERE
- List of Futures/Commodities "Point Values" Quick List: CLICK HERE
- List of Futures/Commodities "Point Values": CLICK HERE
What The "Trade Size Calculator ~ Plus" Does:
The "Trade Size Calculator ~ Plus" computes the MAXIMUM "Trade Size" based on variables the user inputs in the fields on the calculator. We believe the best way to calculate "Trade Size" is represented by the example below which is how the "Trade Size Calculator" works: Stock Example Account Size: $25,000 Risk: 2% NOTE: (You can use 2% if your trading system has a "Win Ratio" of at least 60% and your "Payoff Ratio" is at least 2:1 meaning your average wins are twice your average losses). To calculate your EXACT Risk Percent, we recommend the "Traders Assistant" which calculates this percentage for you based on YOUR ACTUAL PERFORMANCE using "Optimum F" and "Risk of Ruin" Table calculations built into the "Traders Assistance" software. Trade Entry: $10.00 Trade Exit: $9.00 Point Risk = $1.00 Point Value (Stock): $1 Margin Requirement: 150% (Standard Margin Account)* Based on this example, the 'Trade Size Calculator" will compute a "Trade Size" of 500 with a dollar risk of $500! Futures Example (e-mini) Account Size: $25,000 Risk: 2% Trade Entry: $893.75 Trade Exit: $890.25 Point Risk = $3.5 Point Value (ES Contract): $50 Margin Requirement: $3128 Based on this example, the 'Trade Size Calculator" will compute a "Trade Size" of 2 contracts with a dollar risk of $350! A third contract would exceeded the account value. In our examples we did not account for commission, exchange fees, or "slippage." The "Trade Size Calculator" accounts for commission but not for "slippage" or exchange fees. What I do to account for these, is to get an average of both the exchange fees and the slippage and then just lower the "Percent Risk" to account for it. In other words, if I use 2% risk, I will lower it to 1.8% to account for "slippage" and exchange fees. Be careful not to exceed your brokerage's margin limits.
Here is what is available on this page:
- Instructions On How To Use The Trade Size Calculator
- Using the Calculator for options - Attention Option Traders!
- Purchase instructions For Free Trial Users
- How to contact us
Button Functions & Specifics: Once you install the software, you will need to know what values to enter into the "Trade Size Calculator" to make it work. This section of the help page is designed to answer these questions.
"?" Button: Help Button, How You Got Here To This Page!
Account Size: Trading Account Value ($)
Percent Risk: % Risk You Want To Take On The Trade( Recommend No More Than 2% Net Risk). NOTE: (You can use 2% if your trading system has a "Win Ratio" of at least 60% and your "Payoff Ratio" is at least 2:1 meaning your average wins are twice your average losses). To calculate your EXACT Risk Percent, we recommend the "Traders Assistant" which calculates this percentage for you based on YOUR ACTUAL PERFORMANCE using "Optimum F" and "Risk of Ruin" Table calculations built into the "Traders Assistance" software.
Entry price: Trade Entry Price
Exit price: Price If Stopped Out
Commission: Enter "Round-Robin" Trade Commission Paid. Please note that commissions may actually be higher than what you imputed if the calculator indicates a higher "Trade Size" than you calculated commissions for. Basically there is no easy way for the calculator to account for this, so please be sure to account for it yourself. You can always use zero as commissions paid and then account for them after the calculation. The calculator conservatively "rounds" down so that your computed TRADE SIZE includes commissions which makes it a NET TRADE based on the value you entered as commissions.
Point Value: The Value Of One Point Of The Asset Traded. For Stocks, always use 1.00.
- General Instructions on 'Point Values": CLICK HERE
- List of Futures/Commodities "Point Values" Quick List: CLICK HERE
- List of Futures/Commodities "Point Values": CLICK HERE
Margin: This is where you input margin amounts for commodities/futures and stocks: For Commodities / Futures: Entered as $ amount allowed by the exchanges. Margins are first set according to the notional value of the contract traded. Typically margins are set to equal around 7% of the notional value of the contract. For example, the e-Mini S&P is priced at 823. 823 x $50 per-point equals a notional value of the contract of $41,150. 41,150 x 7% = $2,880.50. Currently the margin minimum for an ES (e-mini S&P) is about $2,900. Volatility also plays a role. Margins take this figure into account determining how much a contract has moved peak to trough - the largest move. If the percentage currently used produces a dollar figure that is lower than the maximum move figure - they can certainly expand the margin requirement. In fact, exchanges reserve the right to move margins on an intraday basis. Whether they exercise this right is rarely used. Bottom-line, there no sense in trying to figure out how margins are calculated by the exchanges to an exact science. They can change and do change based upon intraday volatility (peak to trough) and notional value of the contract you are controlling. Using the simple rule of thumb around 7% - figure unless a contract is very volatile or not at all - that figure should up pretty close. Use a good online broker that has margin rates updated and posted on their trading platform daily for clients to see and more importantly, an experienced broker that will have a communication line open to you to communicate any drastic changes in margin to you in a timely manner. This will allow you to trade your account and leave the operational stuff to the people you pay your commission to.
For Stocks: Stocks are represented as a % as allowed by the brokerage and your account type. If you have a "Cash Account," then the user should input 100% (Cash = 100%) If you have a "Margin Account," then you can input 150% to 200% (Conservative = 150%) If you can borrow or margin 100% on your cash account value, then enter 200% If your brokerage has lowered your margin, enter the allowable margin % (100% + Allowed %)
- Note: If the calculator indicates a red colored "Trade Size," then you are using margin to achieve the maximum allowable shares or contracts based on risk and your account size. If the calculator indicates "0" as the Trade Size, then you are exceeding your account size to allow any trade at all in accordance with your stated risk and account size (the trade risk is to great & you should not take the trade).
Stock Future, or Forex: Indicate If You Are Trading Stocks, Futures, or Forex. This changes the "Margin Box" above from $ to % between stocks and futures. for Forex it allows the leverage amounts.
Key Pad: Can Be Used To Input numerical values. it is available as an option for those that like to use key pads.
Calculate Button: Press After Your Have Entered The Necessary Values Into The "Trade Size Calculator ~ Plus."
Trade Size: Occurs After You Press Calculate And Tells You The MAXIMUM Number Of Shares Or Contracts You Can Trade To Maintain Within Proper Money Management Based On The Values You Have Inputted. RED Colored Number: Indicates you are using margin. The calculator will not allow you to trade more contracts or shares than you margin allows. A Zero Number: Indicates no shares should be traded because you are exceeding your risk % even if you trade just one contact or share.
Dollar Risk: Occurs After You Press Calculate And Tells You The Dollar ($) Amount You Are Risking On This Trade. The 'Dollar Risk" amount should never be more than 2% of your trading account size, and includes the commissions you have imputed. Be sure not to exceed inputting 2% into the "Percent Risk" field.
Using the calculator for options: Attention Option Traders! Here are some helpful suggestions for option traders on how to use the "Trade Size Calculator ~ Plus." Enter" Premium" prices for the "Entry Price" and the "Exit Price" fields on the calculator. The key to using this calculator for options is that you will need to know how to determine what the option price (Premium Price) will be when exiting the trade. If you are basing your trade decisions on the "underlying asset" of the option, then you will need to be able to convert the exit price of the "underlying asset" into the options "Premium" price so you can enter that into the calculator. You may need additional option software to do this because the "Time Value" of the option will be instrumental in determining the "Premium" price of the option at trade exit. Option software can calculate the value of the "Premium" prices associated with prices of the "Underlying Asset."
Using the Trade Size Calculator for FOREX Trading: A good forex trading strategy incorporates more than simply identifying entries and exits on a trade. Trading in a size in proportion to your account size can make a difference in bringing consistent results. However, calculating the trade size to place can be a challenging exercise, especially if you are not gifted in math. Follow this simple 3 step process to have the trade size calculated for you.
- Identify how much capital you wish to risk
- Identify your entry and stop loss prices
- Enter the figures into the Risk Management Calculator
Identify how much capital you wish to risk & Risk % Amount For example purposes, let's say you want to risk no more 2% on any given trade. We never know if the next trade is going to be a winner or loser. Identify your entry and stop loss prices Let's assume you have identified a trading opportunity in the EURUSD. At the time of this writing, the EURUSD was trading at 1.08902. Let's assume you wanted to enter at 1.08902 with a stop loss exit of 1.07889. Identify your "Lot Size" 10,000 or 50,000 or 100,000 Now Enter the figures into the Trade Size Calculator Be sure to click on the circle for "Forex" on the front of The Trade Size Calculator, then enter your data. The Trade Size Calculator is a great tool to automatically calculate a suggested trade size. So simplify your trading and bring more consistent results by consistently applying a trade size commensurate with your account size.
Here are the numbers in this example entered into the Trade Size Calculator: Account Size: $50,000; Percent Risk: 2%; Entry Price: 1.08902; Exit Price: 1.07889; Lot Size: 10,000 RESULTS: Trade Size: 9, Dollar Risk: $911.70
FOREX Trade Size Overview: Decide Your Risk Tolerance and Stick to a Plan The benefit of position sizing is to help you predict and control the affect your trades have on your portfolio's value. Too many traders risk inconsistent amounts in each trade. Being inconsistent, or overinvesting in a single trade, will lead to drawdowns in your account that could wipe you out. Knowing how much you have at risk in a single trade compared to your total portfolio will help your investing become much more stable. Good traders sometimes differ on how to calculate the risk, or maximum risk, of any particular position. We believe using the distance between your entry point and your stop loss is the most effective way to determine the maximum risk amount. To size your position, you need to know how much money you have in your account, what percentage of your account you are willing risk, and what your stop loss is. Imagine that you have an account with $10,000 in it and you are willing to lose 2% in a bad trade. You are considering a long position on the EUR/USD at 1.5000 and feel you need a 50-pip stop loss for that trade. You are now ready to calculate your position's size. Formula for calculating a position's size: (Account Value x Portfolio Risk %) / $ value of stop loss = Position size ($10,000 X 2%) / $50 = 4 mini lots We use the stop loss to calculate maximum risk in the forex market because a forex position is a margin position. That means that there is an obligation on the trader's part to make good on losses, but there isn't a transfer of ownership in the currency. You are not actually taking possession of $10,000 worth of currency when you trade a mini lot. What you really own is your obligation, and therefore your position sizing should be based on this rather than the entire notional value. This is unlike a stock trade, where you could ask for delivery of the stock certificate itself. Position Sizing FAQ Here are answers to common questions we get about position sizing:
- What if I only have $1,000 in my account?
We know that there are many traders in love with forex who have very small account balances. This is not uncommon. Many dealers report average account balances of less than $10,000. If you are in this situation and you want to keep your risk low while you keep depositing money in your account, work with a dealer that offers fractional lot sizes. Many dealers have lot sizes much smaller than 10,000 units.
- Why not increase the percentage at risk when I am very confident in my trade?
The key to effective trading is consistency. If you have a particular setup or system that you are extra confident about, make sure you have the experience to back that up. If you have a high-probability trade, always trade the same fixed-risk amount in that trade. Inconsistency will disrupt your equity growth and can hurt your trading mentality.
- How do I account for slipped stops?
We have made a big assumption here by assuming that the amount between your entry price and your stop loss is the most you can lose. We realize stops can be slipped. It's rare, but when the market gets really volatile, it can happen. You will find this is much more common with very tight stops during extreme periods of market volatility. The wider your stop is-which usually accompanies a longer-term outlook-the less likely you are to experience slippage. This is one argument for the use of options as a speculative alternative. A long option position's max loss is capped at the amount paid for the option. You cannot lose more than what you paid. If you were trading a long position on the EUR/USD and simultaneously bought a long put option to protect the position, you could calculate your max loss as the time value portion of what you paid for the put. If all the other variables were held constant and the premium for the put was $100 per mini lot, you would be able to buy two mini lots. ($10,000 X 2%) / $100 = 2 minis You can use any method to protect your trades and calculate your position sizing, just make sure you use one.
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Bennett A. McDowell, founder of TradersCoach.com®, began his financial career on Wall Street and later became a Registered Securities Broker and Financial Advisor for Prudential Securities and Morgan Stanley. As a financial advisor, Bennett’s niche was Active Trading and Investing for a community of high net worth clients using his own proprietary trading system. This system later became known as the Applied Reality Trading®, or the ART®, system.
Bennett brought the ART® software to the public in the year 2003. Today the ART® system is used in over 60 countries around the world by sophisticated hedge fund managers, individual investors and active traders alike. Since the ART® software was released, McDowell has developed many additional software tools that are also being used worldwide.
An expert in technical analysis and complex trading platforms, Bennett speaks at trade shows including the Trader’s Expo and writes articles for many leading trading publications including Technical Analysis of Stocks & Commodities magazine. Internationally recognized as a leader in trading education, Bennett teaches trading to students worldwide through his company TradersCoach.com®.
He is honored to be included as a member of the eSignal Trading with the Masters team and also to present the TradeStation Morning Market Briefing every Wednesday. In addition, TradersCoach.com®, Applied Reality Trading® and The Traders Assistant® Record Keeping System have received numerous Stocks & Commodities magazine Readers’ Choice Awards.
McDowell has written three bestselling books published by John Wiley & Sons: The ART® of Trading, A Trader’s Money Management System and Survival Guide for Traders. His new book Elliott Wave Techniques Simplified will be released by McGraw Hill in 2015.
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