Deploying your trading portfolio

by admin

Before talking about trading your portfolio, as a first rule i would advise to NEVER trade more than you are willing to lose. Also to never trade if you have unmanaged debt. If you decide to do it, all you would be doing is putting psychological pressure on yourself. It’s like trying to compete in a race with both your feet tied.

In an earlier post i talked about how you could handle your finances in order to be able to start trading. Assuming everything was done correctly. And you now have the finances to enter the market, let’s talk about how you could do it.

Managing your trading portfolio (the right way) is like fighting a war with many battles, the ultimate purpose is to win the war.
It would be nice to win all the battles and the war but that just isn’t probable. When it comes down to it, all you need to focus on is winning the war.  That might mean losing a few battles along the way but if the main objective is reached the portfolio would turn a profit.

For multiple battles you need multiple type of “troops” . So you would need to split your portfolio in 10 – 20 – 30 shares. There is a reason for this, trading is not a guaranteed thing, it’s a percentage game. When you spot an opportunity in the market and the odds are in your favor, you can deploy a part of your portfolio.

Let’s take a concrete example.

In this situation i identified a pattern. Descending triangle with multi month RSI divergence. This might mean nothing to you but and according to classical Technical Analysis i knew the odds of the price braking down were 70% .

If i used my entire portfolio for this trade i would have have a 30% chance of losing everything. This would eventually guaranty that i would blow up my account. To give you a comparison, the odds of winning the UK Lotto are 1 : 45,057,474 (and people still manage to win it).

My prediction turned out to be correct. But it still had a 30% chance to fail. Here is an example where it might have failed.

A chance to lose 30% of the time is telling you that if you play 10 times with the same odds you will win 7 out of 10 and lose 3 out of 10. In conclusion, if you want to play strategically you have to make sure you have those 10 – 20 – 30 tries available.

You should also consider that a beginner has a harder time identifying trades with 70% odds. So splitting your trading portfolio in 20-30 parts will give you the chance to fail and learn from it. You must always remember that most people in the market manage to lose money.

Many examples and statistics prove this behavior:

  • Swissquote – (74% – 89% of retail CFD accounts lose money.)
  • Etoro – (65% of retail CFD accounts lose money.)
  • – (80% of retail CFD accounts lose money.)
  • Interactive Brokers – (63.5% of retail CFD accounts lose money.)
  • Saxo Bank – (69% of retail CFD accounts lose money.)

If you don’t fallow this simple rule, of splitting your portfolio, you are not trading, you are gambling. You could just as well go in to a casino and bet all on red.

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