Celaunds.com

Tech which makes Sense

This article originally appeared in Daryl Guppy’s ‘Applied Technical Analysis Tutorials’, was voted #1 trading newsletter in Australia by Shares magazine and #4 in the world by US Stocks & Commodities magazine and is reproduced here With Daryl’s permission.

In addition to developing strong technical analysis skills, sound trading psychology coupled with well thought out money and risk management are also vital key secrets to success when trading or investing in the market.

Drawing on real-life experience and portfolio management lessons learned the hard way, John Atkinson originally designed his series of three money and risk management spreadsheets to aid his own trading. With the help of programmers Stephen Parsons and Peter Tamsett, he recently added several easy-to-use macros and has now made them available as easy-to-use and highly affordable tools to help traders and investors plan and manage their portfolios.

They are designed to assist in planning and developing profitable portfolio growth, putting in place structured money and risk management control, and as a means of keeping simple and accurate records.

Many investors and traders spend less time planning the risk of individual trades and their overall portfolio for wealth building than planning their grocery shopping. Many do not plan, accurately track, or review their progress at all.

Some think that spreading or ‘diversifying’ their portfolio into several large positions in ‘safe’ blue-chip stocks is their way of approaching money and risk management. They don’t realize that overloading on too many positions or one position too large can put their portfolio at serious risk.

Without proper planning, one can end up with a portfolio that is a disaster waiting to happen. We know. We’ve been there and we don’t want you to go through the sleepless nights and gut-wrenching fear, financial and emotional loss that we and some traders we know have experienced as a result.

One of the main reasons we lost our Sydney waterfront home in 2000 and more since was failure to develop or adhere to the correct risk and money management rules, which is why our series of three portfolio has been created from our own very difficult personal experience in a very real time. financial cost of literally hundreds of thousands of dollars and a huge emotional cost.

Next, we look for the information we wish we had looked for or had been told earlier. These tools are based on various “world best practice” principles and strategies taught in this newsletter, in the books of Daryl Guppy, and other business authors such as Alan Hull, Louise Bedford, Dr. Alexander Elder, and Dr. Van Tharp.

Its about:

o Atkinson Portfolio Planner ©: to plan your stock selection and overall sector and portfolio risk in advance

o Atkinson Trade Optimizer © – What stocks to buy when you have a few to choose from and funds are only available for one?

o Atkinson Portfolio Manager © – stop loss, targets, individual stocks and combined portfolio stock curves, closed trade expectation and much more

In the coming weeks we will discuss each of these tools in detail.

We start this week with the Atkinson Portfolio Planner ©.

This tool is designed to help you plan your portfolio correctly so you can sleep at night knowing that you have a balanced portfolio and that you are not overly exposed in any one trade, volatility group or sector.

In addition, you have planned the correct number and size of open positions to ensure that the total risk of your portfolio does not exceed the specified criteria.

This easy-to-use tool allows you to check your planned allocation of:

Mix of high, medium and low volatility stocks

Stock Mix Across Sectors

Individual risk of each position as a % of your portfolio

Maximum % of your portfolio in any position

Total risk of your combined portfolio

Once you’ve entered your requirements, Atkinson Portfolio Planner© will calculate the essential factors above and even flag red alerts if any of your planned or open positions exceed your personal risk profile.

This allows the user to ensure at the planning stages that their hard earned capital will be properly allocated to match the risk levels selected by their own Trading Plan.

It is the user’s responsibility to research and select the criteria to be applied to their trading plan and as a key input to the Portfolio Planner ©, for example, volatility and sector allocation, stop loss levels and % risk factors; and for the final selection of which stock(s) to purchase and the applicable position size(s).

Put all or most of your available funds into one stock or sector; risking a large % of one’s portfolio on any one position or having too many open positions with an unacceptable total % of portfolio at risk are recipes for potential disaster.

The experience of other traders shows that it is also advisable to diversify your capital in a proportion chosen from a range of high, medium and low volatility stocks to maximize the annual growth of your portfolio.

Experienced traders and investors have different rules for money and risk management.

The following are some typical examples from the literature:

1. In his books and this newsletter, Daryl Guppy picks 1/7 (14.3%) on high volatility (eg ‘speculative’); 2/7 (28.6%) in medium volatility (eg mid caps) and 4/7 (57.1%) in low volatility (eg blue chips). Others may opt for a maximum of 10% in high volatility. The final choice is the responsibility of the user.

2. For small portfolios, in his book Share Trading #, Daryl Guppy provides an example of building $6k to $21k, starting with $2k (ie 1/3) at high volatility and $4k (ie 2/ 3) in low volatility stocks; then dividing this again to 1/7; 2/7 and 4/7 when the portfolio has grown to $14k.

3. Maximum position size as % of total portfolio: typically 20-25% absolute maximum; some are reduced to 15% or less for large portfolios or speculative stocks.

4. Maximum Equity Risk: No more than 2% of the portfolio to be put at risk in any one trade; some choose to reduce this 1% or 0.5% for larger portfolios or more volatile positions.

5. In my book ’10 Ways Not to Lose Your Home in the Stock Market’ (published in 2005) I wrote “What we also didn’t realize was that instead of spreading our risk, we were magnifying it. For example, using a 2% portfolio risk stop loss, let’s say a trader has 10 positions, that means if the market suddenly takes a dive and all stops are triggered, they risk losing 20% ​​of their total portfolio value. That’s at twenty positions, so 20 x 2% = 40% of your portfolio is at risk. It can happen, it did. If you freeze or have margin loans, the destruction can be much worse…

Elder refers to the 2% risk rule as protection against shark attack and expands the concept to a 6% rule to protect against piranha attack, i.e. to close the entire portfolio if it drops 6% in the last month.

Taking this to its logical extension, Dr. Elder describes how, by using this strategy, he also limits traders to three positions (at 2% risk) to start with, until some of them make a profit, before opening additional positions. “.

(Readers can refer to my Home Study course module on Money & Risk Management, which is based on and includes the Share Trading & Better Trading books by Daryl Guppy and includes my portfolio tools, available on our site. Also see the books on Louise Bedford ( (eg Trading Secrets) and Dr. Alexander Elder (eg Enter My Trading Room) for further explanation).

In the following article, I discuss how we use Atkinson Portfolio Planner to ensure the following risk and money management planning criteria are met:

1. The maximum total value spent in each volatility group

2. The maximum total value spent in any sector

3. The maximum position size as a % of the total portfolio

4. The equity risk of each position

5. The total risk exposure of the combined portfolio

Leave a Reply

Your email address will not be published. Required fields are marked *