Cutten, 'and a risk assessment of the likelihood of my edge deteriorating before I realise it. ' How do you achieve this (in simple language).
I would fully invest in Growth equities and potential write options as income under specific market conditions. I would also be either fully in or fully out of the market, once again focusing my efforts on understanding market conditions. 6-8% stops ALWAYS and profits would once again be based on market conditions but goals would range from 15% to 100%.
Primarily by monitoring the characteristics of your current and recent trading results. If your results become more volatile, or you win/loss rate or return/risk ratio deteriorates, or you suffer losses beyond a certain point, it is more than randomly likely that your edge has degraded for some reason. It is then prudent to cut back size. This is one reason why many experienced traders reduce size when losing. You should also understand the reasons why your edge exists. Then, keep a look out for factors that might cause the reasons for your edge to disappear. This can allow you to adapt before you start taking losses. If the reasons for your edge are "persistent" (i.e. based on things that are unlikely to change any time soon), then you can be more confident that it will continue operating for a long time. If the reasons for your edge are transient, you have to be much more careful about the prospect of the edge suddenly degrading or even turning negative.
Speculate with...................... 10% Income producing Funds.......... 20% Quarterly T-Bills..................... 17.5% AAA Corporate Bonds...............17.5% Diversified Portfolio of Equities...15% Fund of Municipals Bonds..........20% Michael B. P.S. In 12 months ramp up the quarterly T-bills
I was a very slow starter in 1957 with 300 dollars and I complimented that with 50% of salary for two years to get started. I didn't have any management skills so I just put all the money in the market in 1 then 2 then 4 stocks on up to 8 stock limit. The money management stuff never came to me as a thing to do. But i did learn that i could only manage so many streams of capital at one time. I let them grow larger and I took money out when items came up to buy. When I got to where you are and then multiples of that, I did not change stuff. The times I could screwed up were limited by two things: not screwing up too often or immediately putting the money into a different stock. My reasoning was that there are lots of stocks and all I needed was to have stocks on hand to go into all all times. I found out that there is a limit on what you can hold in a thread of money. I also figured out that it is important to trade with timing rather than price dominating. This means to me that I may never trade too many stocks in a block or my timing will be affected. This sounds backwards I guess. I split my streams into blocks according to what size block others trade. That means I get filled (at market) immediately. It is a sloppy business and at my top level of shares for a given equity in a thread, I have left as much as half of what you speak of on the table on a given day. That would be a variation in performance of about +/- 7% of net profits. Mostly, I have found that I do not push getting trades done as soon in an exit as may have been possible. I trade into the peak as late as I can, across the entire peak and then I try to finish ASAP after the peak has passed. I do not exceed holding more than 8 stocks for monitoring purposes. I cross over from one stock to another by a switch based on money velocity. As my worst held stock declines in money velocity, I then transfer the capital by selling it and then I go into the stock highest potential based upon its rising money velocity. They call this crossover trading. I enter later in the cycle than the beginning and leave earlier in the cycle than the end. I guess what happens is that most risk is out of the picture most of the time. What I am risking mostly is how fast I am making money. In reflection, I can now see that I probably learned my beliefs by osmosis using small amounts of capital. Having to do charts by hand in pencil for many many years as a contemprary of Darvas, sort of stamped my mind indelibly as to how price and volume worked together. When Granville came up with the P, V relation, I just addeda corrolary to complete all possibilities. When software was invented, I found, in 1957, that plotting was easier than loading punched cards into a vacuum tube speed computer. when the copire was invented, I was able to give way charts as paper prints instead of blueprints or brown lines. We traded charts then. I stored WSJ last pages for years in quarterly hanging wood bound bunches so I could back plot (6 months per sheet) new stocks for my universe. We called it back plotting to see if the stocks were reliable enough to trade for the cycles we required of them. Divide your 500k into 8 parts. Get a universe of very high quality repeatable stocks that are cycling in rising trends. Rotate continually through the universe with your capital using the rising half cycles. I repeat "tenured" stocks in favor of new stocks. A typical ratio of shares held goes like 10:30:70 as rotations occur. I limit my shares to a max of the lowest six figure value where the float is in the range of 5 to 30 million shares.This is typical of the compound interest formula if you divide the span into three rough sections. The hold varies. You will easily see that hold cycles are up to 8 days. They can be as short as 3 to 4 days. I sort with EOD data and monitor on 30 min charts on qcharts. If you do short term trading like this it takes about 20 min a day min without monitoring. If you like to monitor you can do that for 2 hours a day in the am only. I make the money I now put into equities by trading futures indexes intraday so I do monitor during the day anyway. If I were you using your capital I could use 1/5th of it to earn enough to support myself monthly in 3 to 5 days a month. Looks like you have a good prospect for the future.
To the original poster: you need to backtest your stragety with different and realistic parameters, and then chose the best setup. As a rule of thumb (maybe even the optimum for positionsizing): spread your total capital (and your risk) over at least 5 positions. But limit each position not to grow over about 2.5 to 5% of the average daily volume of the stock.
Since we've been at and through that level a few times, and obviously ended up in the "big leagues"....I can offer you some advice that I got from my brother Bob. You have to define the "edge" - and then "find" the edge. Respond to the edge when it comes to you. The idea of defining "risk management" (for the most part) in any sort of mathematical equation is simply not going to work unless you play a game like blackjack...where you have defintie rules and finite outcomes. The simple definition of "element of ruin" - perhaps never "betting" more than 1% of your bankroll - can be applied in certain games...not always in trading however. The simple "keep enough to play another day" is the mantra that serious traders must play. Bob told me in 1979 that we are now "in the big leagues...and there is not turning back...ever" --- does that mean that we didn't lose virtually everything a couple of times...?? Well, we did...and we learned (boy did we learn, LOL)...but we never went back to playing nickel slots or looking for "jobs" - because once you are a successful player...you simply cannot feel good about "falling back" on some other way to make a living. Even Donald Trump was virtually broke...and came back well. So, my advice is simple...a half million won't be enough "trading capital" to make you rich...but it can be "used" properly --- either through proper relationships with firms that supply capital (yes, this is a small "plug" - but totally sincere)....and keep the balance for the day when you may need it. Think of it as "grub stake" - always keep enought to play another day...but risk what you have to when the timing is right...play smart, play hard. Don