Risk Management Labels For ThinkOrSwim

[justAnotherTrader]

What Is This?
When day-trading speed is important, but risk management is even more important. I think the reason most accounts blow-up is because they have no idea how to choose size and stops so they "all-in" on hunches. These labels aim to prevent that and protect our money from emotionally charged decisions. The goal is to add a stop and choose a size that reflects the volatility of the instrument you are trading. For that I picked the ATR, because that is what I use.

What It Is Not
These labels should not be a buy or sell signal, there are plenty of indicators and strategies on usethinkscript for that. These are simply a quick and easy risk management tool.

Why They Are Useful:
They do the simple math of telling you where you should place your stop and the amount of shares you should consider based off the risk tolerance you decide.

User Options:

• Risk Size in Dollars - Default = $50
• Risk Multiplier - Default = 2x (The amount of volatility you are willing to risk)

Other Notes: I use this style with trend scalping, but there are many strategies that can earn at least 1xATR, if you design a system around this risk management then you can find many ways to keep your losses small with small gains and an occasional bigger run. 1x ATR for risk management is very conservative, the default is 2x which will catch you more of the runs but the choice is up to you

declare upper;

input length = 14;
input averageType = AverageType.WILDERS;
input risk = 50;
input riskMult = 2;

def ATR = Round(MovingAverage(averageType, TrueRange(high, close, low), length), 2);
def trailStop = Round(riskMult * ATR, 2);
def shares = Round(risk / trailStop, 0);

AddLabel(yes, "ATR: " + ATR, Color.ORANGE);
AddLabel(yes, "Risk: " + " $"+ risk, Color.ORANGE);
AddLabel(yes, "TrailStop: " + trailStop, Color.ORANGE);
AddLabel(yes, "Shares: " + shares, Color.ORANGE);
AddLabel(yes, "TotalCost: " + " $" + Round(shares*close,0), Color.ORANGE);

 

[sindhu19]

nice write up! @justAnotherTrader, do you have something like this but for options contract?

 

[justAnotherTrader]

nice write up! @justAnotherTrader, do you have something like this but for options contract?

Try this, the values have been modified to represent the fact that you are buying a contract for 100 shares.

declare upper;

input length = 14;
input averageType = AverageType.WILDERS;
input risk = 10;
input riskMult = 1;

def ATR = Round(MovingAverage(averageType, TrueRange(high, close, low), length), 2);
def trailStop = Round(riskMult * ATR * 100, 2);
def shares = Round(risk / trailStop, 0);

AddLabel(yes, "ATR: " + ATR, Color.ORANGE);
AddLabel(yes, "Risk: " + " $"+ risk, Color.ORANGE);
AddLabel(yes, "TrailStop: " + trailStop/100, Color.ORANGE);
AddLabel(yes, "Contracts: " + shares, Color.ORANGE);
AddLabel(yes, "TotalCost: " + " $" + Round(100*shares*close,0), Color.ORANGE);