I've been working to refine volatility based stops for a while now and I think I've figured out the best possible way to calculate optimal stops. Part of the job was removing arbitrary calculations from the equation as much as possible. At the end of it, though, I've now realized that I need to remove the guesswork from my max position size. Everybody says 1 or 2 percent is a good idea, but why? Someone show me why those specific numbers or something in-between are somehow better..
So, has anybody figured out how to objectively and non-arbitrarily determine maximum risk?
Attached is the spreadsheet I'm using. I won't explain any of the logic but If you have the ability to figure out my reasoning from a bunch of strung-together equations go ahead.
The blue cells are the only user inputs. I used to have actual stops displayed but it was overkill so I removed that functionality.