ATR based stoploss and position sizing
Assume my Capital 100000
Bought this stock at 869 and my max risk is 1% i.e 1000 rs...
Stoploss is 713 rs..subtracting double the ATR value 78×2 = 156 from 869
Position sizing will be
Risk/(Buy-Stoploss) or Risk/( 2×ATR)
1000/(869-713) or 1000/(2×78)
= 6.4 .... So max position is 6 stocks only
......
A small variation can be made to this so that we can increase the shares without increasing the risk
Our previous stoploss is 156rs ..i.e around 17% of 869 which is huge ...most of the time we don't need such huge stoploss logically ...so we can spread our stoploss thus increasing shares without increasing risk.
So lets divide our Risk into 3 parts 330 each
First stoploss we will take 5% stoploss .. 825rs
Position size 330/ (869-825) = 7.5.. 7 shares
Second Stoploss we will take 790 ..10% stoploss
Shares 330/ 79= 4 shares...
Third stoploss we will take our actual 2ATR Stoploss
330/ 156= 2 shares
Total now 7+4+2= 13 shares instead of just 6 shares.
In first case only 6 shares ... Even if stock moves 10% upside +86 rs ... U get only 86×6 = 516 rs profit
But in second case assuming our all stoplosses are intact .... We get 86×13 = 1118 rs profit
Disclaimer: Educational purpose only
Bought this stock at 869 and my max risk is 1% i.e 1000 rs...
Stoploss is 713 rs..subtracting double the ATR value 78×2 = 156 from 869
Position sizing will be
Risk/(Buy-Stoploss) or Risk/( 2×ATR)
1000/(869-713) or 1000/(2×78)
= 6.4 .... So max position is 6 stocks only
......
A small variation can be made to this so that we can increase the shares without increasing the risk
Our previous stoploss is 156rs ..i.e around 17% of 869 which is huge ...most of the time we don't need such huge stoploss logically ...so we can spread our stoploss thus increasing shares without increasing risk.
So lets divide our Risk into 3 parts 330 each
First stoploss we will take 5% stoploss .. 825rs
Position size 330/ (869-825) = 7.5.. 7 shares
Second Stoploss we will take 790 ..10% stoploss
Shares 330/ 79= 4 shares...
Third stoploss we will take our actual 2ATR Stoploss
330/ 156= 2 shares
Total now 7+4+2= 13 shares instead of just 6 shares.
In first case only 6 shares ... Even if stock moves 10% upside +86 rs ... U get only 86×6 = 516 rs profit
But in second case assuming our all stoplosses are intact .... We get 86×13 = 1118 rs profit
Disclaimer: Educational purpose only
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