A $25,000 account risking 1% with a $5 stop loss distance = $250 max loss = 50 shares.
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Target total: 100%
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FREQUENTLY ASKED QUESTIONS
What is dollar cost averaging and does it actually work?
Dollar cost averaging is investing a fixed amount at regular intervals regardless of market price. Research consistently shows it outperforms lump-sum investing for most retail investors in practice — not because it generates higher mathematical returns, but because it removes the psychological barriers of trying to time the market. The average investor underperforms the market by 1–2% annually due to emotional buying and selling; DCA eliminates most of that behavioral risk.
How do I calculate the right position size for a trade?
Use the formula: Shares = (Account Size × Risk %) ÷ (Entry Price − Stop Loss). For example, a $50,000 account risking 1% with a $3 stop loss: ($50,000 × 0.01) ÷ $3 = 167 shares. Most professional traders risk 1–2% per trade, never more than 5% on any position, which limits maximum drawdown and keeps you in the game long enough for your edge to play out.
What is DRIP investing?
DRIP (Dividend Reinvestment Plan) automatically uses dividend payments to purchase more shares instead of paying cash. Over long periods, DRIP dramatically amplifies returns through compounding — each reinvested dividend purchases shares that themselves pay future dividends. Many studies show that dividend reinvestment accounts for 40–50% of total stock market returns over multi-decade periods.
How often should I rebalance my portfolio?
Most financial research suggests rebalancing when any asset class drifts more than 5% from its target, or annually at minimum — rather than on a fixed schedule. Threshold-based rebalancing outperforms calendar rebalancing by reducing unnecessary transaction costs. If you're investing new money regularly, directing new contributions to underweight assets is the simplest and most tax-efficient rebalancing method.
What is a good dividend yield?
A sustainable dividend yield of 2–4% is generally considered healthy for large-cap stocks. Yields above 6–7% are often warning signs — either the stock price has dropped sharply, or the dividend may be unsustainable and at risk of being cut. Always compare dividend yield against the company's payout ratio: if it pays out more than 80% of earnings as dividends, future cuts become likely in a downturn.