Percent Volatility Model

Discussion in 'Strategy Development' started by jlcarey1, May 3, 2007.

  1. jlcarey1


    Can someone give me a practical example on how to calculate the "Percent Volatility Model" for size positioning?

  2. mspkash1


    Say you are trying to get into a stock at $100 and the 5 or 10 day ATR is $2, then the amount you risk per trade will have to be proportional to the ATR (or volatility). In this case after you buy the stock, you put a stoploss that is always at x times the ATR below the buy price.

    Say x = 10 then
    Stop Loss = 100 - (10*2) = $80
    Per stock you are risking $20.

    Percent Volatility Model is just a special case of Percent Risk Model but it considers volatility for position sizing.
    So if you are risking 2R on your account size of $100,000 which is $2000, then you'd buy

    2000/20 = 100 Shares