Watch this video on YouTube

So how I grew my $50,000 account, this is part two of the other video I did, how I grew my initial grub steak of five or six K when I was first starting my trading career and I didn’t know anything. I’m 36 years into it. In many ways I still feel like I don’t know anything because the market’s always morphing, trying to basically kill us and take all of our money. But once I hit that goal, I remember being in not a state of shock, but I remember like, okay, I had a really succinct plan, much of which was documented by the way, in the live stream, which you can go see on the channel. If you go to the live tab, click on it, you can watch the replay. I said, you know what? I’m going to stick to my knitting and use this same type of methodology that guaranteed my success.
Now, in the short run, you don’t know if it’s skill or luck because randomness is everywhere, right? Do you think things happen because it’s the hand of God or because it’s randomness? Well, what are we? But for our faith, at that moment in time, I said, okay, well, how can I optimize my portfolio now that I have more capital, I have more margin. I always referred to my account as margin. Even when I was trading stocks, I was like, okay, now I have more margin. And so what I did was I went back to the whole thing with portfolio management, where you have the X and the Y axis, and then at zero you have the market risk, and then as you add names, you come down, you can diversify away the unsystematic risk, and there’s an optimal number of instruments that you can have where that helps you with risk reduction.
Mind you, risk reduction is not risk management, it’s just risk reduction. It’s largely done through diversification, and so I figured that it was like after six, there was only marginal benefit to be over and being over diversified, I knew my goal was to amplify my cash, obviously pay the fees, pay my taxes, so I rounded it down to five because it was an easier, it’s hard to divide any number that ends in zero by six. You don’t get a really clean number. So I said, okay, let me divide everything by five. And then I came up with partitioning my capital that way, and then on a very regimented basis, I still stayed hypervigilant on the data and where things were and how to add into my winners. I just had more choices. Now, if the winners kept working, I would keep adding. There was no rule that said I had to only add twice or add three times.
Maybe I’m stupid. Maybe I got lucky. I don’t know. It worked out in the end. Then it was like my next campaign was to take it up to $250k. So I tried to just think about rates of return and percentages. I didn’t try to think of the numbers because that was the biggest amount of money that I ever had in my possession at the time, and I didn’t want to get overs psyched out and start saying like, okay, I got to take bigger risks, or I got to take smaller risks. I just wanted to stick to the plan because everything from my plan was based on percentages.

I didn’t deal with dollars, and that was important because as the numbers became more staggering and I got into six figures, I kept saying like, wow, if I lost all this money or took a big hit in the margin, I could be back to waiting tables again, which I didn’t necessarily, I liked it. I met a lot of great people. I made a lot of money. It was just that there was no intellectual property in doing it basically, and the money that I was making was basically as good as it was going to get. There was no, if I didn’t go to work, I didn’t get paid. Again, think about yesterday’s opportunity, opportunity, cost lesson. If a woman I was dating at the time who I’m still very friendly with, she largely worked Monday through Friday, and my jobs were all largely, I did work during the week.
I largely worked six days a week at the golf course and at the restaurant, but most of those folks were going to Jones Beach in New York, in Long Island or the Jersey Shore down by Spring Lake or maybe even up to Cape Cod. I’ve been to all those places a million times. I love the Cape. I love Jersey Shore. I love it all. They’re all very, very different kind of temperament and personality wise, but they’re great this time of year. So if I said, okay, let’s go to the beach on a Saturday or on a Sunday. The golf courses are really, really busy. Restaurants in the morning aren’t really open. So it was more about Saturday night, but that was always opportunity cost. Those were always decisions I had to make. If I went out on a date and I didn’t work a Saturday night, it was not just what the date was going to cost me, it was the fact that I was going to miss out on a couple hundred bucks of tips.
So I was like, okay, well what’s the total cost of doing this? I always had a strong understanding of opportunity cost, and so in growing the account, once I got to $50k, I’m like, okay, well, I’m going to basically dance with the girl who brought me. I have this methodology I noticed, sit on my hands and wait for the right setup, but I also know how to sit on my hands when I’m in a winning trade and learn what are the best times to add. Adding to my winners was absolutely key. If you’re looking for an inflection point, what was the asset? It was my sense of timing over because these were commodity positions that I was holding for weeks if I could, and knowing when they were lower risk entries for my second and end degree entries. You see what I’m saying? Always moving my protective stop in lockstep with the price action so that I always could calculate for the most part, what did I actually have at risk? In portfolio management land, we talk about portfolio heat. You see what I’m saying? So what does that mean in case you don’t know? So if you have three trades on in your portfolio and each one is risking one half of 1% from the current market value, you could say that your portfolio heat is one and a half

Percent, which is what you would forgive or forsake of your capital, your corpus, the money in your account if you were to get stopped, right? And it doesn’t mean losses. You can have protective stops below your winning trades that would just knock you out of your winners, but it’s still coming out of your overall high watermark. So that’s where you calculate that. If you had ten one percent positions, you’d have 10% portfolio heat. So if you had 10 quarter points, you do the math, you’d have two and a half percent portfolio heat, and so when you go back to thinking about trading as a business over time, when you look through your winning and losing periods, you might be able to see like, huh, when I have too many positions on for my particular trading style, assuming that you’re using consistent bed sizes, which you should be, you might find that when you get up like four or five, 6%, that’s too much for you both spiritually and financially. So you might find that there’s a sweet spot for your trading style. That’s how that works.

The post How I grew my $50k account – Part II first appeared on MartinKronicle.

The post How I grew my $50k account – Part II appeared first on MartinKronicle.