Dear Stuart,
Sorry I am just responding today. I tried to respond on Friday but had trouble with my password. With the percent risk model, you take 1% of the total value of your account, let's say marked to market on Friday night it was 1,000,000. Then you say 1% of 1,000,000 is 10,000. This is what you are risking per trade, and you need to know this number to figure out how many shares you buy. If you are buying a stock at 50 and the stop point is 45, you are risking 5 points to the stop. So then you take 10,000 divided by the 5 point risk, and it means you buy 2,000 shares for that particular trade. 2,000 x 5 = $10,000, the amount you are willing to risk on the trade. But the amount invested in the position is 2,000 x 50 = $100,000. So in the Apple example I bought 4439 shares because:
Stock was at 90 1-4 Stop= 87, so risk to stop = 3 1-4
Value of account at the time = 1,442,675.00, so 1% = 14,426
14,426 divided by 3 1-4 risk to stop = 4439 shares to buy
But investment in position = 4439 x 90 1-4 = $400,620
I hope this helps explain your question.
Regards,
Susan Morrison
Dorsey, Wright |
