Size the trade for today, not for last week.
Your normal risk and stop, adjusted for how wild the market is this morning.
The morning letter's size card does this sum every weekday with that day's volatility.
The sum
Risk today = account × normal risk % ÷ volatility factor. Stop today = normal stop × volatility factor. Dollars per point = risk today ÷ stop today.
Example: a $6,000 prop account risking 0.33% on a 30-point Nasdaq stop. On a day running 1.34× normal, that is $14.78 of risk on a 40-point stop, or $0.36 per point. Check how that size affects your odds with the challenge calculator.
Questions
Why adjust position size for volatility?
When the market moves more than usual, a normal stop gets hit by noise. The calculator divides your risk by the volatility factor and widens the stop by the same factor, so a wild day costs you less and a calm day lets you size up a little.
What is the volatility factor?
Today's volatility divided by its normal level, for example today's ATR divided by its 50 to 100 day average, or a volatility index such as VXN against its average. 1.0 is a normal day, 1.34 means a third wilder than normal.
What does dollars per point mean?
How much your position should gain or lose per 1.0 move in price. Your broker's contract size turns that into lots.
Is the volatility factor capped?
Yes, between 0.5 and 3, the same limits the morning letter uses, so one strange reading cannot make the size extreme.
Tomorrow's levels and size, before the open.
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