Are you interested in learning about portfolio strategy based on your account size? In this video, “4-10 Portfolio Strategy By Account Size”, Heating & Cooling Solutions explores different trading strategies based on the amount of money in your account. For smaller account sizes, around $5,000, it is recommended to stick to trading only one underlying such as IWM or EMR, with a capital allocation of around 10% per trade. As your account size increases, you can trade more underlyings, adjust your risk per trade, and expect a higher trade frequency. This article provides valuable insights into portfolio strategy based on your account size, helping you make informed decisions when it comes to trading.
Portfolio Strategy by Account Size
In this video, we will discuss portfolio strategy based on different account sizes. It’s important to note that as your account size grows, you have the potential to trade more underlyings and adjust your risk and trade frequency accordingly. Let’s explore the strategies for each account size range.
Account Size: $5,000
If you have an account size of $5,000, it is recommended to trade only one underlying. You can choose either the IWM (Russell 2000 Index ETF) using the UI Version One strategy or the EMR using the Put Broken Wing Butterfly income trading method. Trading only one underlying allows you to focus and manage your trades effectively.
For capital allocation, it is suggested to allocate around 10% per trade. With a $5,000 account size, this means your risk per trade would be $500. It is important to have a minimum risk amount to ensure that the spread width is wide enough, typically around 5 points. A wider spread allows for better trade efficiency and reduces the risk of getting stopped out due to a tight spread.
Considering the trade frequency, with only one underlying, you can expect an average of 2-3 trades per month. However, trade frequency may vary depending on market volatility. During high volatility periods, you might have more trade setups, while low volatility environments may result in fewer trade opportunities. It’s important to adapt and adjust your expectations based on market conditions.
Keep in mind that you should always adhere to the guidelines set by your maximum capital allocation. As a general rule, if you have an open trade, it will typically account for around 10% of your account. So, if you have an average of 2-3 trades per month, your capital allocation usage will be around 20-30%.
Account Size: $10,000
With a larger account size of $10,000, you have the potential to trade two underlyings. The recommended underlyings for this account size are the IWM and EMR. These two underlyings work well together, as they provide a defensive strategy (EMR) and an opportunity for when the market goes up and down (IWM).
When it comes to risk per trade, you can adjust it to a range of 5-7%, which translates to roughly $500-$700 per trade. This higher risk per trade is possible because of the larger account size, allowing for more aggressive trading. However, it’s essential to assess and manage your risk tolerance before adjusting your risk level.
Trade frequency for a $10,000 account is estimated to be around 3-5 trades per month. Again, this can be influenced by market volatility. Higher volatility may present more trade setups, while lower volatility may result in fewer opportunities.
Account Size: $115,000
For those with an account size of $115,000, you have the potential to trade three underlyings. The suggested underlyings for this account size are IWM, EMR, and either SPY or XSP. This combination provides diversification and balance to your portfolio.
With a larger account size, you can lower your risk per trade to a range of 4-6%. For a $115,000 account, this translates to approximately $4,600-$6,900 risk per trade. By reducing your risk per trade, you can better manage your overall risk exposure and maximize potential profits.
Trade frequency is estimated to be around 4-7 trades per month for a $115,000 account. As always, the trade frequency will depend on market volatility and the availability of trade setups. Remember to adapt and adjust your trading approach based on market conditions.
Account Size: $20,000
An account size of $20,000 allows for trading four underlyings. The recommended underlyings for this account size are IWM, EMR, SPY, and XSP. This combination provides further diversification and potential trade opportunities.
With a $20,000 account, you can lower your risk per trade to a range of 3-5%. This means your risk per trade would be approximately $600-$1,000. Lowering the risk per trade allows for a more conservative approach, minimizing potential losses while still maintaining a good risk-to-reward ratio.
Trade frequency for a $20,000 account size is estimated to be around 5-10 trades per month. This higher trade frequency is possible due to the larger account size and the availability of more underlyings to trade. However, it’s important to manage trade selection carefully and avoid over-trading.
Account Size: $25,000
With an account size of $25,000, you have the potential to trade five main underlyings. The suggested underlyings for this account size are IWM, EMR, SPY, XSP, and QQQ. This combination allows for even greater diversification and expands the range of trade opportunities.
For risk per trade, you can stick to the range of 3-5%, similar to the $20,000 account size. This would be approximately $750-$1,250 risk per trade for a $25,000 account. It’s important to maintain consistent risk management practices to protect your capital and manage potential losses.
Trade frequency for a $25,000 account size is estimated to be around 6-10 trades per month. The larger account size and increased number of underlyings allow for more trading opportunities. However, it’s crucial to maintain disciplined trade selection and avoid over-trading.
Account Size: >$225,000
For accounts larger than $225,000, you can continue to trade the same five main underlyings: IWM, EMR, SPY, XSP, and QQQ. These underlyings provide a comprehensive portfolio and allow for diversification across multiple sectors.
Depending on the account size, additional trades on individual stocks can also be considered. This allows for further diversification and potential trade opportunities. However, it’s crucial to carefully assess and manage the risk associated with individual stock trades.
When the max allocation of buying power is reached, you have several options. You can choose to forgo new trade setups and wait for existing positions to close. Alternatively, you can close out existing positions to free up buying power for new trades. This decision should be based on your risk tolerance and ongoing market analysis.
In conclusion, portfolio strategy by account size is an important aspect of successful trading. As your account size grows, you have the potential to trade more underlyings, adjust your risk per trade, and increase trade frequency. It’s essential to maintain a balance between risk and reward, adapt to market conditions, and consistently evaluate your trading approach.