The ONE Position Sizing Formula Every Day Trader Needs!

This one line, everybody, is going to decide whether a losing trade cost you 50 bucks or your entire week. Most traders just choose their trading size by feel. We're going to give you a three-step formula we use with real numbers so you can have every loss be a size that you choose. >> everybody, there's very, very simple rules here. It's quite easy to figure this out, and we're going to go through a bunch of examples. Watch this hidden mistake. You don't want to make these mistakes. You don't want to lose too much. Let's go through the math. Very simple kind of stuff right here, right now. Look, trade A. How many shares? 200 shares. What's our entry? What's our stop? What's our distance? What we're trying to figure out here is how much money do we actually want to make or lose on a specific trade. Trade A, look at this. Same shares. Everything's the same, except for this one, we have a bigger stop loss. The projected loss, $1,000, versus our projected gain of $200. But, if you say to yourself, "Hey, I'm not sure where the stop loss is actually going to go." So, what we have to do is fix your share size. Not just a random dollar risk. Fix the dollars instead. So, don't say, "Oh, I'm just going to use 500 shares here. Where's my stop?" We're going to show you a method right here, right now, on how you can actually control your losses based on share size. I think that's the important thing that we're all talking about, because at any given time, you can throw out 100 shares, 200 shares, 300 shares, but are you actually taking the same risk? Let's dive in and figure this thing out. All right, step one. Define and decide how much you're willing to lose. Basically, depending on the size of your account, you're always looking to be about half a percent to 1% of losses, right? So, in this example, let's use a small account, $25,000 * 1%. What we're going to do is lose maximum $250 on this trade. Okay? Then, we're saying, "Okay, if we're going to lose $250, what does this look like?" We have to measure the stop. How far is your stop away from the entry price, okay? So, it's going to be your entry price minus your stop price. In this example, we're going to try say 4250 is where we're in. We're going to get stopped out at $40.20. Therefore, the risk is $2.30 per share. That's the important thing. Then we slide over to the third step over here. Get your shares fixed now. 250 divided by that 230 tells you how many shares you're going to get. So, you need 108 shares. In case this trade goes wrong, you're going to lose your $250. And here's the math right here. This is what you got to do to understand the risk. All right. Plan your stop price. That's where we're going to get out. That's $248. But what's the mistake that often traders make? Well, hey, I'm in the trade. It's looking good, but I don't really want to get out there anymore. I'm going to extend my stop loss. What winds up happening is you change it to $38. All of a sudden now, that's 2% worth of risk. And now you're stopped out at $486 when you only meant to lose $250. Risk nearly doubles already decided what your risk was going to be initially. That's a big mistake. Don't do that. Don't revenge trade. Get out where your stop is to lock that in. The next step. Why would you ever size up to make back a loss? This is This is pretty much the mistake that I make as a trader all the time. Oh, I just got hit on 100 shares. My next trade's going to be 200 shares. But that throws the math off just the same kind of way. Because all of a sudden, now you're using 216 shares with the same stop, it's a $497 loss. Let's do a real-world example. This was actually Intel yesterday. Okay? Here's the move right here. This is where my stop is. Here's Intel consolidating. This is real. This is what we look at every single day. Here's consolidation. I want to go long Intel. Where's my breakout? My breakout is right here. We're finally starting to gap higher, right? Above the 200, above VWAP, everything. It's looking quite nice. Where's my stop? Right here at $87. But we're going to go a little under that. We're going to go to 86.99. I never want to stop at the even dollar. So, right here, we do the math. 87.80 is my entry. That's where my stop is. As you can see on the side here, we have a $25,000 account. This time, you know, we're only going to risk half a percent. Just to show you the different math. There it is. Our dollar risk is 125 is how much we're willing to lose on this particular trade. If that's our entry, that's our stop, we do the math right there. That's 81 cents. Now, for 81 cents, how many shares should we have? 154 shares. As long as you understand this risk, that's where it's at because 81 cents as this continues to climb out, then you can start to decide where do I take this out? 81 cents gives you one to one. As it continues to climb, you're good on that. The four rules, let's go over them one more time. Figure out your risk. How much per trade are you willing to risk out of your total account? Generally speaking, most traders half to 1% okay? Regardless if you have a $100,000, $25,000, whatever you have. The next one is put the stop, find it on the chart. All right, put the stop below that swing level that we just showed you. You either an even dollar level, whatever look whatever look you like. The next one there, the shares. Do this math. The dollar risk divided by the stop distance we just showed you. If it's going to be 81 cents, that's what you're going to use. Never widen the stop past what this math gives you. It's very simple, easy way to decide what the risk should be per share. Therefore, your dollar amount remains locked in. You don't want to lose more than you've initially planned. >> That's right. Everybody out there, pick one trade from your last week. Run it through the setup and the math and the formula and see whether it can form or not. Did you end up taking the right size? Was it off? Too much? Too little perhaps? Did you follow the rules? Let us know in the comments cuz it's always a great way to grade your trades.