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1. Case two
risk% * total_capital / (entryprice - initialstop)
= 0.02 * $100000 / $2 = 1000 shares, assuming your entry price was $10 and
your intial stop was $8
So actually 10% of your capital will be committed to the trade in this case.
2. You may want to look at using a measure of volatility such as the ATR in
determining your position size.
Also you may want to consider putting a firm limit on the maximum % of total
capital you will allocate to any one trade.
Regards
Dave
_____
From: equismetastock@xxxxxxxxxxxxxxx [mailto:equismetastock@xxxxxxxxxxxxxxx]
On Behalf Of chichungchoi
Sent: Wednesday, 8 March 2006 10:58 AM
To: equismetastock@xxxxxxxxxxxxxxx
Subject: [EquisMetaStock Group] Risking 2% for investment, but what to do
with the the rest of 98%?
Account balance is $100,000, I would like to risk 2% [$100,000 x 2% =
$2,000] for my investment and would like to purchase XYZ stock at $10,
and project the target level at $14 with stop loss level at $8.
How much shares should I purchase?
In case 1, number of shares = $2,000 / $10 = 200 shares.
I should invest $2,000 for this trade, and require only $2,000 for this
investment. Do I put $98,000 into saving account?
In case 2, number of shares = $2,000 / ($10-$8) = 1,000 shares
I should risk $2,000 for this trade, and require 1,000 x $10 =$10,000
for this investment. Do I put $90,000 into saving account?
Does anyone have any suggestion on how much shares I should purchase
for 2% risk? How to utilize more capital for investment and still
maintain 2% risk?
Thank you
Eric
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