General Topics
Markets
Technical Topics
Brokerage Firms
Community Lounge
Site Support

# 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?

Thanks.

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

Cheers

ET IS FREE FOR TRADERS BECAUSE OF THE FINANCIAL SUPPORT FROM THESE SPONSORS: