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Fixed dollar amount, or fixed cash amount, position sizing is a money management technique that lets you allocate exactly the same amount of money for each trade you enter. Regardless of the stock, its price or its volatility, the number of shares for each new trade is calculated based on the amount per trade you would like to allocate. Positions in low-priced stocks will have a larger number of shares than high-priced stocks.
To apply the fixed dollar amount position sizing technique to your trading system, simply add the following money management script to your strategy and type the amount per trade that you would like to invest. This money management can be applied to long, short or long/short portfolios.
The portfolio's number of positions can be used to limit the number of open positions at any time.
Sometimes you will see in the simulation report that some trades were entered with an amount that is different than the fixed cash amount you have specified. This is because, during the simulation, the calculation of the number of shares is based on the previous close price and thus the executed order size could be different that the fixed cash amount allocated to the trade.
Here is an example:
The close price of stock X is 10$ and you have allocated 10,000$ for each trade.
The simulator will create an order to buy 1000 shares.
On the next day, when the market-at-open order will be executed, the stock price opens at 9$.
The amount invested to buy stock X is equal to 9000$ (9$ * 1000 shares).
There is a 1000$ difference between the fixed cash amount, which is equal to 10,000$, and the actual amount invested.