Trade log and trade risk calculator

[PeterD 49]

As we progress as traders, we all develop our own ways of managing risk, establishing our rules and deciding on what trades to take. As part of my decision process, I have fairly unique way in which I decide my trade sizing that fits with my philosophy. So, let's start there. Part of risk philosophy is that I always want to take the same dollar risk on every trade, no matter the stop loss I set (or the price of the stock). In order to manage this, I have set up a simple spreadsheet (as part of my trade log) that allows me to quickly calculate the number of shares I should take to maintain a consistent risk target.

A couple of notes. First, I do not take a trade based on my account size, the price of the stock or the capital required. I focus solely on the amount I am risking on the trade. I believe this allows me to balance my risk across my trades for the day and not find myself with something like 4 winners and 1 loser, but negative on the day since the loser was huge. All trades should deliver the same value, and carry the same risk. Some other traders do much the same using a concept of "trading units" or "risk units". Second, the risk I take on a any trade will always be consistent for the day and be part of my daily trading risk profile. Once I set these values pre-market, I will not change it for the day. I decide the values based on my previous performance, how I am feeling on the day, what other distractions I may have, and how long I am trading that day. (These parts of my philosophy I can explain at another time.)

Here's an example. Assume for the day I have decided upon a profit target of $500 with a daily max loss of $300 and per-trade max loss of $100. Below is a sample chart. Let's say I want to go long $SQ off of the ABCD pattern presented and I am looking at taking a maximum of $100 risk (ie- max loss) on the trade, as per my plan. The current price is $90.35. A reasonable, but tight(!), stop-loss would be $90.05 (the bottom of the ABCD candles), or $0.30. 

Using my spreadsheet (below), I have set for the day my max $100 loss in cell C2. I simply plug the $0.30 loss target into cell C3, and cell C4 tells me I can take 330 shares. No more, no less! To deviate from this number would skew both the risk and potential reward I could expect from the trade.  The only way I can change the share size is to either tighten my stop-loss (increasing the chance it'll be hit, but decreasing how far the stock has to move before I take profit), or loosening my stop-loss (which has the opposite effect). But, no matter what I decide, once I enter the trade, I WILL stick to that stop-loss target. My sheet has auto-calculated the target profit as I will always look for a trade that, at a minimum, delivers a 2:1 risk-reward ratio. This does mean that I have to be confident that $SQ has the possibility of going up at least $0.60. If not, I will pass on the trade.

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I keep this spreadsheet open in a small window on a secondary PC all day. This way, all I have to do is punch in the loss target number into C3 and it'll give me the shares I can trade. While simple, I find this keeps me focused and consistent on my share sizes and ensures I do not take a huge dollar risk on one trade and a lower risk on another. Because, as we all know, it'll be the big one that usually ends up to loser!

I hope this helps. If you have questions or comments, please post them! If you have other calculators, please share!

 

Below is a link to the spreadsheet. Remember to set your expectation low! It is simple. The spreadsheet also has a daily p&l log, a calendar that will trade you winning and losing days, and a couple of other tabs in case you find them useful.

https://drive.google.com/open?id=1qqTPpgUU2sDf-t8-yKso33KIwdfmL2rF

Happy trading!

Edited September 26, 2018 by Peter D
added link to Google drive for spreadsheet

[David Ricksecker 0]

Really excited to implement this in my own trading setup, Peter. Thanks for always being willing to pass these ideas along. After another big losing day for me from not following my rules I think this will be perfect for me. Cheers.

[MadsFromDenmark 10]

What a nice work Peter! 
Thanks you, so much for this.