« Of Losses and LIARs. »

Traders,

One essential piece of your portfolio design is position sizing. As the name suggests, it refers to how much money you place in each position. The more capital devoted to a single trade, the more risk it carries. 

Since losing trades are a reality, you must size small enough so that getting stopped out of a position doesn’t take too large of a toll on your financial and emotional capital. Losing 1% of your portfolio if you’re wrong is one thing. Losing 10% is quite another. 

But proper sizing goes beyond risk per trade. You also must consider what happens during a losing streak. We use the acronym LIAR to represent Losses In A Row. All systems will experience LIARs, and your rules need to consider this. Otherwise, you’ll blow up your account or quit because the pain is too much to bear. 

If you keep a trade journal, you’ll eventually get an idea of the typical losing streaks your system experiences. That, in turn, can help you size small enough to survive them.

🛑 Upcoming Webinar › Portfolio Design for Beginners: How to Design your Trading & Investing Portfolio | Dec 20th at 8:30 PM EST

Join Tackle Trading in this upcoming Trading For Beginners webinar on the basics of Portfolio Design and Delta Weighting for traders and investors alike.

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Chart of the Day: Trouble Brewing in Small-Caps

Small-caps were sliding ahead of Wednesday’s Fed meeting. IWM cracked support and looks headed to the lower-end of its year-long range. Don’t let the S&P 500 fool you. There’s great pain in the market right now.

Video of the day: Jedi Options: How to Use Protective Calls to Recoup Losses on Stocks

Coach Tyler teaches how to use Protective Calls when stocks fall in price to mitigate risk, recoup losses, and perform trade management in this Jedi Options Video.

Today’s Line up

Traders Lounge 11 PM EST

Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.

Cashflow Club 8:30 PM EST

Held every Thursday before Friday’s option contract expirations, this show helps you perfect your favorite cashflow strategies.

Halftime Report 12:30 PM EST

The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day, and fun in a way that only Matt and Tim can deliver.

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