What This Tool Does

This interactive calculator helps you find the right position size for any trade based on your portfolio size and risk limit. You’ll instantly see how many shares to buy and how much you’re risking — so that even if you lose, your portfolio stays safe and consistent.

Step 1

Enter your portfolio size and how much risk (in %) you take per trade.

Step 2

Add entry price, stop price, and small slippage/fee (default $0.02).

Step 3

See your ideal position size and total dollar risk update instantly below.

Example

You have a $200,000 portfolio and you risk 1% per trade ($2,000). You want to buy at $150 with a stop at $140.

➜ Per-share risk = $10
➜ Shares = $2,000 ÷ $10 = 200 shares
➜ Dollar at risk = $2,000

*This example shows how risk remains constant no matter what stock you trade.

Risk Management Playbook: Position Sizing, Loss Brakes, and Time Stops

Drawdowns kill compounding. This playbook gives you simple, repeatable rules that cap downside without strangling upside. Use the position size calculator, adopt a portfolio loss brake, and add a time stop to avoid dead money.

Intermediate • Updated Sep 26, 2025 • Educational content (not investment advice)

Assumptions (for consistency across pages)

Benchmark: SPY (total return); Risk-free: 3-mo T-Bill.
Costs: 0.06–0.15%/yr ETF fee; 0.03% slippage per trade (assumed).
Liquidity: avg daily $ volume ≥ $20M for single names.

Position risk limit: 1.0% of portfolio per trade (default).
Portfolio loss brake: review at −12% trailing max-DD (monthly).
Time stop: exit if 8 weeks with no progress & close < 50-DMA.

Module A — Position Sizing

Rule (fixed-fraction): Risk per trade = 1.0% of portfolio.
Position size = Risk $ / (Entry − Stop). Use ATR(14)×1.5 as a sensible initial stop distance if you don’t have a technical level.

Rule (volatility target): For ETFs, choose shares so that position volatility ≈ target % of portfolio (e.g., 0.6%/day). Size = (Portfolio × TargetVol) / (DailyVol in $).

Portfolio Value ($)

Risk % per Trade

Entry Price ($)

Stop Price ($)

Slippage + Fees ($/share)

Position Size (shares)

—

Dollar at Risk

$—

Why this matters: Keeping risk per trade constant prevents a string of losers from crippling your portfolio. With a 1% cap, five stop-outs cost only ~5% — manageable and recoverable.

Module B — Risk Limits

Single-name loss cap: do not exceed the 1% risk; if earnings/catalyst adds gap risk, halve size or avoid.

Portfolio loss brake: if trailing drawdown reaches 12% at month-end, de-risk to your neutral allocation (e.g., 60/40 or 50/50 with T-Bills) until the equity curve makes a new 3-month high.

Trade-off: Loss brakes reduce deep drawdowns but can whipsaw in sideways markets. They are a seatbelt, not alpha.

Module C — Time Stops & Hygiene

Time stop: if after 8 weeks the position’s close is below entry and under the 50-DMA, exit and re-evaluate.

Execution hygiene: avoid thin liquidity (< $20M ADV), use limit orders near mid; avoid holding speculative single-names through earnings unless it’s a deliberate catalyst bet with half size.

Evidence Snapshot — Backtest Summary

Model	CAGR	Stdev	Sharpe	Max DD	Worst Year
SPY Buy & Hold	8.68%	14.81%	0.47	52.19%	-36%
SPY + 12% Loss Brake (monthly)	8.10%	11.30%	0.56	26.4%	-12%

Methods: Derived from monthly SPY & 3-mo T-Bill data (Python backtest). Quarterly rebalance; slippage = 0.03%; risk-free = 3-mo T-Bill. “12% Loss Brake” reduces drawdowns by reallocating to T-Bills when trailing DD ≥ 12%. See Methodology.

Interpretation

The 12% Loss Brake strategy demonstrates how active risk control can improve long-term portfolio resilience. While the CAGR dropped slightly compared to buy-and-hold (8.10% vs 8.68%), volatility fell significantly and the Sharpe ratio improved from 0.47 to 0.56. This means investors achieved more return per unit of risk while cutting maximum drawdown almost in half (52% → 26%).

For most intermediate investors, this approach offers a smoother equity curve — fewer sleepless nights, faster recovery after market stress, and less emotional decision-making. The Loss Brake acts like an automatic seatbelt: it won’t drive returns higher, but it keeps your portfolio alive to compound another day.

Educational content — not investment advice. Markets involve risk. See Disclaimer.