Position Sizing from Stop Distance, Risk Budget, and Reward Ratio

Summary

The indicator estimates trade risk and position size from an entry price, stop level, account capital, and a chosen risk percentage. It calculates the stop distance as a fraction of entry price, derives a quantity from the amount of capital at risk, and projects a target price using a configurable reward-to-risk multiple. It also displays the estimated risk amount, position value, share count, and potential gain on the chart.

An optional mode adjusts the stop using a 14-period average true range. This provides a volatility-sensitive alternative to the fixed stop input, while the reward multiple and risk budget remain user-configured. The document includes formulas and display logic but no worked examples or validation. Its quantity calculation rounds to a whole number and may not account for fees, slippage, gaps, contract multipliers, lot constraints, or instrument-specific conventions, so its estimates require adaptation before use.

Key ideas

• Position quantity is derived from the account risk budget and the distance between entry and stop.
• The target price is calculated by applying a configurable reward-to-risk multiple to the stop distance.
• An optional ATR adjustment makes the stop level depend on recent volatility.
• The indicator displays estimated risk, position value, quantity, target level, and potential gain.
• Rounding and omitted trading costs or instrument rules can make actual risk differ from the displayed estimate.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.