StockFetcher Forums · Filter Exchange · VOLATILITY-BASED STOP LOSSES AND POSITION SIZING<< 1 2 >>Post Follow-up
FetchMan1999
8 posts
msg #117867
Ignore FetchMan1999
1/23/2014 11:05:07 AM

Im missing something with the ZNGA example.
If you bought 7092 shares at 4.00 and your stop loss is at 3 then you would lose $7092 not $1000


FetchMan1999
8 posts
msg #117868
Ignore FetchMan1999
1/23/2014 11:09:15 AM

I see what I am missing. The chart in the ZNGA example shows the stop loss as a value of 3. It does not include the decimal .85 Is there a format needed to output the decimal.

Kevin_in_GA
4,538 posts
msg #117869
Ignore Kevin_in_GA
1/23/2014 11:10:06 AM

We'll use two actual $4.00 stocks, but we will use the ATR(20) as our stop loss rather than a set percentage. For ZNGA the ATR(20) is 0.13, and for CSVN the ATR(20) is 0.45. You can immediately see that if we used a standard 5% stop on both of these, the risk of tripping the stop loss for CSVN is much higher than for ZNGA. So to hold our loss at $1000, we need to customize the number of shares and stop loss position for each stock, rather than just use a set percentage based on the amount of the trade. Rather, the amount of the trade is varied based on the volatility of the stock.

Example

ZNGA :
the absolute amount willing to lose = $1000
the absolute drop in value = 1 x ATR(20) or $0.13

the number of shares to purchase = 1000/0.13 = 7692 shares with a stop loss at ($4.00 - $0.13) = $3.87.
total amount in this trade = 7692 x $4.00 = $30,768


The stop loss is at 3.87, not at 3.00

StockFetcher Forums · Filter Exchange · VOLATILITY-BASED STOP LOSSES AND POSITION SIZING<< 1 2 >>Post Follow-up

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