Position Sizing Calculators

Difference Between Calculators

This page features two different types of position sizing calculators. It is up to you which you think is best for you. You can refer to our position sizing guide for more insights.

Percentage of Portfolio Position Size Calculator

This position sizing approach calls for your position size to be a percentage of your portfolio value.

For example, you might decide that each position size will be equal to 10% of your portfolio. So if your portfolio were $10,000, that means your position size would be $1,000.

With that example, if the stock costs $500, our stock position size calculator shows you'll buy 2 shares. Or if you are looking at an option that costs $200, or option position size calculator shows you could buy 5 contracts.

A benefit of this position sizing approach is that you always put the same amount at risk on each trade. It’s formulaic and consistent.

It’s also a compound position sizing approach, which means that as your account grows, your position size grows. This can help accelerate returns if you are a profitable trader.

A drawback to this approach is that if you always use the same percentage for each position, it might equate to differing odds of success between positions since each stock has different levels of price volatility.

For example, if you have one position with a sleepy stock and one position with a high-volatility stock, they are given equal weight even though they might have much different potential profits since their prices move at different speeds.

ATR-Based Position Size Calculator

This calculator uses Average True Range (ATR) as a basis for setting the position size. It’s our preferred position sizing calculator here at Stock Market Guides.

We like it for a couple reasons:

1. To make sure each trade has an equal potential impact on the account balance, we focus on ATR. It represents the average distance a stock price has moved each day in the recent past.
   
   This metric is helpful because it allows us to measure each stock’s price movement in an “apples to apples” way between stocks. It eliminates the drawback of the percentage of portfolio calculator described above .


2. This is also a compound position sizing approach. In other words, as your account grows, you increase your position size with each new trade.
   
   We like that because it can have a multiplying impact on your profitability if you’re trading with an edge. The power of compounding is strong.

Tradeoffs Between Position Size Calculator Values

Whether you use the ATR-Based Position Size Calculator or the Percentage of Portfolio Position Size Calculator, you can choose a position size that is small, large or somewhere in between.

There are tradeoffs with each choice:

Position Size That Is Small

If you use a position size that is small, it limits both your potential risk and reward. It means that stocks or options you buy may not be likely to lose you much money, but they also aren’t likely to set the world on fire with profits, either.

Using a small position size can be really smart if you’re just getting started with trading or if you are testing out a new trading strategy. After you get acclimated, then you might reconsider whether to change your position sizing approach.

Ultimately, you aren’t going to be trading very long if you can’t live with the drawdowns associated with trading. That’s another reason to start small. It might be better to find your unique personal risk limit by starting on the side of safety instead of starting with too much risk.

Position Size That Is Large

If you use a position size that is large, it means you are taking on more risk in exchange for the potential for more reward.

If you are a profitable trader, it could potentially benefit you to take on a bigger position size up to a certain degree. It allows you to get more reward for your profitable trades, which can help your account grow faster.

That said, if you go too big with the position size, even a profitable trader can blow out an account. Here is an extreme example to demonstrate that risk.

Imagine that you are an options trader who wins 99 times out of 100. You only lose 1% of the time and are very successful. Well, if you use a 100% position sizing strategy where you risk your entire portfolio on each trade, then that one time you lose could blow out your entire account. This shows that if the position sizing is too large, even a great trading strategy can result in a blowout.

Ideal Position Sizing Calculator Values

Ultimately, there is no perfect position size to use that works for everyone. There are tradeoffs with all of them.

And each person has unique preferences. What works for one person might give another person major stress.

Our position sizing guide offers some information about the research we’ve done about optimal position sizes from a statistical perspective. You can read that and consider it, but ultimately, it’s up to you to pick a position size that matches your own risk preferences.

Questions About Position Sizing Calculators

If you have questions about how to use the calculators, or if you have questions about any aspect of the stock market or trading in general, you can reach out to us any time and we’ll be ready to help.