≈ An Insightful Case Study. ≈

Traders,

Today’s chart expands on yesterday’s by detailing an actual portfolio design. Let’s break it down and see what best practices we can discover. 

First, the account value is $100k and split into four buckets. 70% is in cash flow, and the remaining 30% is split evenly between growth, speculation, and cash. The reasoning for the heavy allocation to cash flow is two-fold. First, covered calls (labeled Tackle 25 in the schematic below) are capital-intensive and thus require a more significant portion of the portfolio. Second, we’re assuming this trader has a greater degree of confidence in cash flow systems. Therefore, it is logical that she puts more money into this area of the portfolio.

Second, by breaking down each system into individual positions, we can better understand the risk rules that govern the portfolio. For instance, there are three Tackle 25 positions, each accounting for 20% of the account value. That’s a relatively large amount in a single trade, so I assume these are more conservative stocks such as WMT and AAPL. It’d be even better if they were ETFs such as IWM or EEM. By comparison, note how small the speculation sizing is at 5%. 

Third, the 10% in cash could be for many reasons. Maybe this trader finds that deploying 100% of the capital creates uncomfortable portfolio volatility or exposure that exceeds her overall risk limits. Or, perhaps they always want some cash available for hedging and adjustments. It could also be “just-in-case” capital to be used for a rare opportunity. 

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Chart of the Day:  Detailed Portfolio Design

Here’s is a filled-out version of yesterday’s schematic. What can you learn from this example?

Video of the day: Queen’s Court: How to Manage your Trading Account During the Holidays

Coach Emily asks Coach Tim for advice on how to manage her trading account while she’s busy during the Holidays in this Queen’s Court segment.

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.

The Coaches Show Replay

If you missed last night’s episode where Coaches Mark Justice and Tyler Craig talked about Best Practices for a Messy Market or would like to watch it again, check it out in the video below.

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.

Trade Masters 7:00 PM EST

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Trading Justice 455: Daily Trading Routines

In this episode, Coach Tyler Craig teaches how he approaches his daily trading routine. Building a daily trading routine can help you make your approach more consistent and structured, follow your rules, and increase the effectiveness of the time you spend in the markets. Listen in to this week’s feature to learn how Tyler approaches his, and get some tips and tricks that can help you build your own daily routine. 

Listen to the episode in the player below:

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