This article was originally featured in Daryl Guppy's 'Tutorials in Applied Technical Analysis', voted no 1 trading newsletter in Australia by Shares magazine & No 4 in the world by U.S. Stocks & Commodities magazine and is reproduced here with permission Daryl's.
In addition to developing a good technical analysis skills, strong trading psychology along with smart money and risk management are also important key secrets for success when trading or investing in the market.
From real life experiences and lessons learned in portfolio the very hard way, John Atkinson originally designed set of three Money and Risk Management spreadsheets to help. Their own trade Through the help of programmers Stephen Parsons and Peter Tamsett, he recently added some user macros and have them available now as easy to use and designed to help you plan and manage their portfolios. Highly affordable tools for traders and investors
They are designed to assist in planning and developing profitable growth of the portfolio, by introducing structured money & risk management control in place and as a means of simple and accurate records.
Many investors and traders spend less time planning of the risk of individual transactions and their total portfolio for their wealth than they plan their shopping. Not accurately track many of plan or revision of their claims at all.
Some think that the spread of 'diversification' of their portfolio in several major positions in "safe" blue chips is their way of money and risk management to address. They do not realize that overload in too many positions or excessive position their portfolios in serious danger.
Without proper planning one can end up with a portfolio that is a disaster waiting to happen. We know. We have been there and we would not want you to go through the sleepless nights and gut wrenching fear, financial and emotional damage that we and some traders know we have experienced as a result.
A major reason why we lost our Sydney waterfront home in 2000 and more, because it was not develop or adhere to risk and money management rules to correct - so that our series of three instruments portfolio originated from our own personal very hard blow experience in a very real cost of literally hundreds of thousands of dollars and a great emotional price.
We then went looking for the information that we wish we were looking for, or had advised in advance. These tools are based on different 'world's best practice principles and strategies taught by this newsletter, Daryl Guppy's books by other authors such as Alan Hull merchant, Louise Bedford, Dr. Alexander Elder and Dr. Van Tharp.
They consist of:
o Atkinson Portfolio Planner © - your stock selection and sector overall portfolio risk and to plan in advance
o Atkinson Trade Optimizer © - if you buy a few to choose from and stock funds only available for?
o Atkinson Portfolio Manager © - stop loss, goals, individual stocks and combined portfolio equity curves, expectations of closed transactions and 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 your portfolio to plan, you so you can sleep at night, knowing you have a balanced portfolio and are not exposed in a particular trade, volatility group or sector.
Also, that the correct number and size of the open positions have planned to ensure that your overall risk of the portfolio does not exceed the specified criteria.
This easy to use tool allows you to your planned distribution of control:
Mix of high, medium and low volatility stocks
Mix of shares between sectors
Individual risk of each position as a% of your portfolio
Maximum% of your portfolio in any one position
Overall risk of your portfolio combined
Once you have entered your wishes will Atkinson Portfolio Planner © calculate the above essential factors and even red flag warnings if any of your planned or open positions exceed your personal risk profile.
This allows the user to ensure that in planning your hard earned capital attributable Plan selected according to risk levels by your own Trading correctly.
It is the responsibility of the user to search and select the criteria to be applied for his / her Trading Plan and as an important input for the Portfolio Planner © eg volatility and sector allocation,% stop loss levels and risk factors, and the final selection of the stock (s) to purchase and the appropriate position size (s).
Putting all or most of your available resources in a stock or sector, placing at risk a large% of a portfolio in the same position or having too many open positions with an unacceptable total% of the portfolio at risk recipe for potential disaster .
Experiences of other entrepreneurs shows that it is also wise to diversify in a chosen relationship between a series of high, medium and low volatility to maximize supplies. Annual growth of their portfolio their capital
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 choose: 1/7 (14.3%) in the high volatility (eg 'speculatives') 2/7 (28.6%) in medium volatility (eg "mid caps") and 4/7 (57.1%) in low volatility (eg blue chips). Others may choose a maximum of 10% in the high volatility. The final choice is the responsibility of the user
2. For small portfolios, in his book equity trading #, Daryl Guppy shows an example of building $ 6k to $ 21k, starting with $ 2k by (ie 1/3rd) in a high volatility and $ 4k (ie 2/3rd) in low volatility, this split back to 1/7, 2/7 and 4/7 when the portfolio has grown to $ 14k.
3. Maximum position size as a% of the total portfolio: generally 20-25% absolute maximum, what to bring to 15% or less for large portfolios or speculative stocks.
4. Maximum Equity Risk: Not more than 2% of the portfolio to be placed in a specific trading risk - some choose to decrease for larger portfolios or more highly volatile positions that 1% or 0.5%.
5. In my book '10 ways not to lose your home in the Stock Market "(due in 2005) I wrote" What we do not realize is that instead of spreading our risks, we were magnifying our risk. Example, Using a stop loss of 2% portfolio risk, say a trader has ten positions. This means that if the market takes a sudden dive and all registers are activated, they risk losing 20% of their total portfolio value. Expand from which to twenty positions, then 20 x 2% = 40% of their portfolio at risk It can happen - it happened .. If you freeze or have margin loans, the destruction be much worse ....
Dr. Elder refers to the 2% risk rule as protection against shark attack and the concept is further to a 6% rule to protect piranha attack to close out the entire portfolio if it drops by 6% in the last month. Ie
Taking this to its logical extension, Dr. Elder describes how, using this strategy, traders also limited in three positions (at 2% risk) to start, until one of them rise in profit before opening additional positions. "
(Readers may wish to refer to my home study course module on Money & Risk Management, which is based on and includes Daryl Guppy's Share Trading & Better Trading books and contains my portfolio tools - Available on our site also refer to books by Louise. Bedford (egTrading Secrets) and Dr. Alexander Elder (eg Come into my Trading Room) for further explanation.)
In the following article I will discuss how we Atkinson Portfolio Planner to ensure that the next scheduled risk and money management criteria are met:
1. The maximum total value spent in each volatility group
2. The maximum total value spent in each sector
3. The maximum position size as a% of the total portfolio
4. Equity risk for each position
5. The combined total portfolio exposure
John Atkinson is the co-editor of the world famous 'Investing & Online Trading' stock market newsletter with weekly stock trading education for beginners and experienced traders and investors by high profile merchant authors Jim Berg, Daryl Guppy, Dr. Brett Stone Barger & Dr. of Tharp.
His previous ebooks contain '7 Secrets to Profitable Online Stock & Share Trading 'and' Atkinson-Guppy Articles '- a series of articles written for Daryl Guppy's newsletter' Tutorials in Applied Technical Analysis ', previously no 1 trading newsletter voted in Australia' Shares "& No. 4 in the world by 'stocks and commodities. "
John's co-authors of the new book The Stock Trading Template traders how they build their Trading Plan shows, with input from Tim Wilcox Jim Berg, Daryl Guppy & Dr. Brett Stone Barger.
A free copy will be given to all 'Investing & Online Trading' stock market newsletter members when released in February 2006.
For a free trial membership & Free ebook sample chapters visit and join the free scholarship club
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