Money Management for Busy People
Narrow Down the Watch List
Now that I have a watch list, every week I go through this list looking for the best setups. I narrow my watch list down to about 10-15 of the best looking charts, and/or charts that have made a constructive pullback and are near a buy point. My main watch list is usually around 20-80 stocks added via my various scans over the years. I do pare that list down from time to time.
Once I have the 20-25 best setups I will rank the top 5 or so out of them. I will flag these five best setups, if I have capital available I will place orders on the absolute best setups out of these. I want to wait for the premium setups and if no setups are available then I do not place any orders. One of the reasons I wait for what I deem to be perfect setups is that I use large position sizes. Larger than what I would say a lot of traders would be comfortable using. What do I mean by position sizing? That is the amount of trading account that you put into one trade. For me I like to put up to 50% of my account into each trade(not always, depends on the setup). That is why I wait for the very best setups.
Why such a large position size? My trading style is somewhat infrequent. I am not making a large amount of trades, so in order to achieve a decent return a large position size is needed. It is not for everyone. You have to be confident enough in your trading skill to be able to risk so much.
We have been very conditioned to not take risks with our investments and to play it incredibly safe, so it is hard for a lot of people to take these kinds of abject risks. That is probably a topic for another blog post, but I have a different opinion that in order to get ahead in life some highly calculated risks are needed. Keep in mind, this is no way akin to quitting your job and going all in on a business idea. This is much less risk, as you should be funding your trading account with risk capital and not with your emergency fund. I realize it is hard for people to save enough to actually have risk capital in today’s world, but it is possible. If anyone is interested in how I did it just ask.
Even with large position sizing, it is possible to risk less than 5% of your total capital. a 50% position size with 10% stop equals 5% total portfolio risk. Many people recommend not risking more 2-3% of your total capital on any given trade, so this is a bit more risky of an approach. There are calculators that can found via simple google searches for adjusting your max portfolio risk, or you can easily make one in a spreadsheet like I did.
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