Lesson 5

Position Sizing
Placing Trade Orders

By Adam Khoo

Copyright ©
Adam Khoo Learning Technologies Group Pte Ltd 2022
 Position Sizing
• Position sizing is the part of your trading system that tells you how many shares to
buy/sell per trade.

• Position sizing will help you to determine

• How many shares to go long/short for a particular trades
• Your risk per trade and overall risk to your portfolio
• Your expected returns to your portfolio

STRATEGY

10 %

30 % PSYCHOLOGY
POSITION 60 %
SIZING
 Position Sizing
Step to Calculating Position Size

Step 1) Calculate Your Capital (Net Liquidation) = shares + cash

•Example: $10,000
Step 2) Determine your Risk per trade?
•‘Risk’ refers to the maximum loss per trade
•This is the maximum you can lose if your stop loss is hit
•This loss should never be more than 1%-3% of your capital
•In other words, never risk more than 1%-3% of your capital on any one
investment
•Example: Risk per trade 1%
 Position Sizing
3) Determine Your Position Size for Each Investment

No. of Shares = % Risk Per Trade x Capital

Risk per Share

Example 1: You want to go long on Bank of America (BAC) at

• Entry price of $8.60.
• Stop loss $7.90 &
• Pro t target at $10.00
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 Position Sizing
3) Determine Your Position Size for Each Investment

Pro t target sell $10.00

Pro t per share

+2R $1.40,

Buy Entry $8.60

-1R $0.70,
Risk per share
Stop Loss sell $7.90

How many shares can you buy?

No. of Shares of BAC = 1% x $10,000 = $100 = 143 shares

$0.70 $0.70
BAC Position = $8.60 x 143 = $1,229.80
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 Position Sizing
3) Determine Your Position Size for Each Investment

No. of Shares = % Risk Per Trade x Capital

Risk per Share

Example 2: You want to Sell Short JC Penny (JCP) at

• Entry Price $16.50.
• Stop loss $18.60 &
• Pro t target at $12.30.
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 Position Sizing
3) Determine Your Position Size for Each Investment

Stop Loss buy $18.60

$2.10,
-1R Risk per share

Sell Entry $16.50

Pro t per share

+2R $4.20

Pro t Target buy $12.30

How many shares can you short sell?

No. of Shares of JCP = 1% x $10,000 = $100 = -48 shares

$2.10 $2.10
JCP Position = $16.50 x 48 = -$792
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 Position Sizing
•Use the Position sizing calculator
•Enter the Boxes in ‘white’. Results are in ‘RED’.
 Position Sizing
4) How Many Positions Can You Have Concurrently?
Potent Return
Stock Position Risk (1R)
At least 2R

Long BAC 1.229 SGD 1% 2%

Short JCP -792 SGD 1% 2%

Long MCD 2.300 SGD 1% 2%

Long AAPL 2.600 SGD 1% 2%

Total
6.921 SGD 4% 8%

Ensure that Concurrent Positions are NOT

correlated
Loss of Capital % Gain To Recoup Loss

10 % 11,11 %

20 % 25 %

30 % 42,85 %

40 % 66,66 %

50 % 100 %

60 % 150 %

70 % 233 %

80 % 400 %

90 % 900 %

Broke
100 %
 Position Sizing
5) Determine Your Expectancy & Your Expected Return
• What is your expectancy (edge) per investment?

Expectancy per Trade =

= % Win x (Average Win) - % Loss x (Average Loss)
= 55% x (Average Win) - 45% x (Average Loss)

Example
• Average loss = 1% x $10,000 = $100
• Average Win = 2% x $10,000 = $200

• Expectancy per trade = 55% ($200) - 45% ($100)

= $110 - $45 = $65 per trade
• 100 trades a year = $65 x 100 =$6,500
• Return on Capital = $6,500 = 65% per year
$10,000
 Position Sizing
The Concept of R-Multiples
• Successful traders think in terms of ‘R’ multiples
• 1R is a unit of risk
• 1R = Maximum Risk per Trade = 1%-3% of Capital
• A losing trades results in -1R
• A winning trade results in +2R or more

Using R- Multiples to Calculate Expectancy

Expectancy per trade = (50% x 2R) - (50% x 1R)
= 1R - 0.5R = 0.5 R
If you do 100 trades a year = 100 x 0.5R = +50R

If every 1R = 1% of capital, 50R = +50% Return

If every 1R = 2% of capital, 50R = +100% Return (high volatility)
If every 1R = 3% of capital, 50R = +150% Return (Very high volatility)
 Position Sizing
Use the Simulation Program to look at
potential drawdowns and returns
 Lesson 5
Placing Trade Orders
How Do I Place Orders to Buy and Sell with the Broker?
What Are the Different Kinds of Orders Available?
Understand Market, Limit, Stop and Stop Limit Orders
How Can I Automate My Investment and Trade Executions?

By Adam Khoo

Copyright ©
Adam Khoo Learning Technologies Group Pte Ltd 2023
 Placing Orders
1) BID & ASK PRICE
ASK PRICE- The price you buy at (market)
BID PRICE - The price you sell at (market)

Buyers are offering Sellers are asking for

this price this price

Last Done Click ‘Bid’ to Sell Click ‘Ask’ to Buy

Price
 Placing Orders
2) MARKET ORDERS
• A market order is an order to buy/sell at the current market price

• Buy Market Order- Buy at the Current Ask Price (i.e. $207.00)
• Sell Market Order- Sell at the Current Bid Price (i.e. $206.68)

• Market orders guarantees your order is filled.

• The Price transacted is not guaranteed
• Market orders are rarely used to enter new positions

Sell Buy
 Placing Orders
3) LIMIT ORDERS
• A limit order is an order to buy/sell at a LIMIT PRICE or BETTER
• A buy limit order is used to buy BELOW the current market price
• A sell limit order is used to sell ABOVE the current market price

• Limit orders are not guaranteed to be filled. The limit price is guaranteed.

• Example: Current Ask market price of BA is $207.00

• Place a limit order to buy at $205
• Order will only be filled if BA falls to $205 or lower

• Buy Limit Orders are used to enter long trade positions (when price is
overextended) and to take profits for short trades

Buy Limit
$205
 Placing Orders
3) LIMIT ORDERS

• Example: Current bid market price of BA is $206.68

• Place a Sell Limit Order at $210
• Order will only be filled if BA rises to $210 or higher
• Sell limit orders are usually used to take profits at a particular price or higher.

Sell Limit
$210
 Placing Orders
4) STOP ORDERS
• A stop order is an order to buy/sell at the market price only when a particular price is hit (i.e. the
STOP PRICE)
• Buy stop orders are used when we want to buy ABOVE the current market price
• Sell stop orders are used when we want to sell BELOW the current market price

• Example: Current Ask market price of BA is $207

• Place a Buy Stop Order at $208 (stop price)
• If the price rises to $208, the stop price is activated and the stock will be bought at the
next available market price.
• Buy Stop Orders are usually used as a “ stop loss” order for Short Trades

Buy Stop
$208
Sell Stop
$205.00
 Placing Orders
4) STOP ORDERS
• Stop sell orders are used when we want to sell BELOW the current market price

• Example: Current Bid market price of BA is $206.68

• Place a Sell Stop Order at $205 (stop price)
• If the price drops to $205, the stop price is activated and the stock will be sold at the next
available market price.
• Sell Stop Orders are usually used as a “ stop loss” order for long Trades

Buy Stop
$208
Sell Stop
$205.00
 Sell Limit Order Buy Stop Order
Above the market price Above the market price

Sell Market Order Buy Market Order

Below the market price Below the market price

Sell Stop Order Buy Limit Order

 Placing Orders
4) STOP LIMIT ORDERS

Buy Stop Limit Orders Used to Enter a Long Trade Position

• Buy Stop Order -> Buy at the market price once the ‘stop price’ is
reached
• Buy Stop Limit Order -> Order is lled only at a pre-determined limit
price or lower

$50.05 $50.55
Buy Stop Limit Order
$50
1R = $5

Sell Stop $45.05

0.1R = $0.50
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 Placing Orders
4) STOP LIMIT ORDERS

SELL Stop Limit Orders Used to Enter a Short Trade Position

• Sell Stop Order -> Sell at the market price once the ‘stop price’ is
reached
• Sell Stop Limit Order -> Order is lled only at a pre-determined limit
price or higher

0.1R = $0.50
Buy Stop $54.95

1R = $5
$50
Sell Stop Limit Order
$49.95 $49.45
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 Placing Orders
6) DAY & GTC ORDER

a. Day Order
- An Order that is in force only during one trading day. The order is Canceled
at the end of the day if it is not executed.

b. GTC Order
- Good Till Canceled Order. An order to buy or sell that will remain in force
until cancelled or executed.
- Used for Stop Loss Orders and Trailing Stop Loss Orders
 Placing Orders for Long Setups
•Professional Traders place bracket orders, where an entry order
has a pro t target and stop loss attached. OCO Order
•GTC: Good Till Cancelled

Take Pro t Sell Limit ($60.05) Order

GTC
2R =
$10

Entry Buy stop ($50.05) Limit ($50.55) Order

Day or GTC
1R =
$5
Sell stop ($45.05) Order
Stop Loss
GTC
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 Placing Orders for Long Setups
•Professional Traders place bracket orders, where an entry order
has a pro t target and stop loss attached. OCO Order
•GTC: Good Till Cancelled

Take Pro t Sell Limit ($60) Order

GTC
2R =
$10

Entry Buy Limit ($50) Order

1R =
Day or GTC
$5
Sell stop ($45) Order
Stop Loss GTC
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 Placing Orders for Short Setups
• Professional Traders place bracket orders, where an entry order has a
pro t target and stop loss attached.
• GTC: Good Till Cancelled

Stop Loss
Buy stop ($54.55) Order
1R = GTC
$5
Entry Sell stop ($49.55) Limit ($49.50) Order
Day or GTC

2R =
$10

Buy Limit ($39.55) Order

Take Pro t
GTC
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 Lesson 5
Position Sizing
Placing Trade Orders

By Adam Khoo

Copyright ©
Adam Khoo Learning Technologies Group Pte Ltd 2023