Investing & Online Stock & Share Trading: Money & Risk Management - Atkinson Portfolio Planner (1)

This article was originally featured in Daryl Guppy's 'Tutorials in Applied Technical Analysis', voted no 1 trading newssheet in Commonwealth Of Australia by Shares magazine & no 4 in the human race by United States Pillory & Commodities magazine and is reprinted here with Daryl's permission.

In improver to developing sound technical analysis skills, strong trading psychological science coupled with well thought-out money and hazard management are also critical key secrets for success when trading or investment in the market.

From existent life experience and lessons in portfolio management learnt the very hard way, Toilet Atkinson originally designed his series of three Money and Hazard Management spreadsheets to assist his ain trading. Through the aid of computer programmers Sir Leslie Stephen Talcott Prsons and Simon Peter Tamsett, he recently added respective user friendly macro instructions and have now made them available as simple to utilize and very low-cost tools to help bargainers and investors program and manage their portfolios.

They are designed to assist in the planning and developing of profitable portfolio growth, by putting structured money & hazard management control in topographic point and as a agency of keeping simple and accurate records.

Many investors and bargainers pass less clip planning the hazard of individual trades and their overall portfolio for their wealthiness creative activity than they make planning their grocery store shopping. Many make not plan, accurately track or reappraisal their advancement at all.

Some think that spreading or ‘diversifying’ their portfolio into respective large places in 'safe' bluish bits is their manner to turn to money & hazard management. They make not realise that overloading in too many places or too large a place can set their portfolio seriously at risk.

Without proper planning 1 may stop up with a portfolio that is a catastrophe waiting to happen. We know. We've been there & we wouldn't desire you to travel through the sleepless nighttimes and intestine racking fear, financial and emotional loss that we and a few bargainers we cognize have got experienced as a result.

A major ground why we lost our Sydney waterfront home in 2000 and more than since was not developing or adhering to rectify hazard & money management regulations - so our series of three portfolio tools have been created from our ain personal very hard knocking experience at a very existent financial cost of literally 100s of thousands of dollars and at a huge emotional cost.

We subsequently went looking for the information which we wish we’d looked for, or had been advised of, prior. These tools are based on assorted ‘world’s best practice’ principles and strategies taught by this newsletter, Daryl Guppy’s books and by other bargainer writers such as as Alan Hull, Louise Bedford, Dr Alexanders Elder and Dr Avant Garde Tharp.

They dwell of the:

• Atkinson Portfolio Planner © - to program your stock choice & overall sector & portfolio hazard in advance

• Atkinson Trade Optimizer © - which stock to purchase when you have got got got got got a few to take from & finances only available for one?

• Atkinson Portfolio Manager © - halt loss, targets, individual stock & concerted portfolio equity curves, anticipation of closed trades and much more

Over the approaching hebdomads we volition discourse each of these tools in detail.

We begin this hebdomad with the Atkinson Portfolio Planner ©.

This tool is designed to assist you be after your portfolio correctly so you can kip at night, knowing you have a balanced portfolio and are not too exposed in any 1 trade, volatility grouping or sector.

Also, that you have planned the right number and size of unfastened places to guarantee that your sum portfolio hazard makes not transcend your specified criteria.

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

Mix of high, medium and low volatility shares

Mix of shares between sectors

Individual hazard of each place as a % of your portfolio

Maximum % of your portfolio in any 1 position

Total hazard of your concerted portfolio

Once you have entered your requirements, the Atkinson Portfolio Planner © will cipher the above indispensable factors and even flag redness alarms if any of your planned or unfastened places transcend your personal hazard profile.

This allows the user to guarantee in the planning stages that your hard earned capital will be apportioned correctly to conform to put on the line degrees selected by your ain Trading Plan.

It is the duty of the user to research and choice the criteria to be applied for his/her Trading Plan and as cardinal input signal to the Portfolio Planner © e.g. volatility and sector allocation, halt loss degrees and % hazard factors; and for the ultimate choice of which stock(s) to purchase and the applicable place size(s).

Putting all or most of your available finances into 1 stock or sector; placing at hazard a large % of one’s portfolio in any one place or having too many unfastened places with an unacceptable sum % of portfolio at hazard are formulas for possible disaster.

Experience of other bargainers shows that it is also wise to diversify their capital in a chosen proportionality between a range of high, medium and low volatility pillory to maximise annual growing of their portfolio.

Experienced bargainers and investors have varying regulations for money and hazard management.

The following are some typical illustrations from the literature:

1. In his books and this newssheet Daryl Guppy takes 1/7 (14.3%) inch high volatility (e.g. ‘speculatives’); 2/7 (28.6%) inch medium volatility (e.g. ‘mid caps’) and 4/7 (57.1%) inch low volatility (e.g. ‘blue chips’). Others may take a upper limit of 10% inch high volatility. The concluding pick is the user’s responsibility

2. For small portfolios, inch his book Share Trading #, Daryl Guppy supplies an illustration of edifice from $6k to $21k, by starting with $2k (i.e. 1/3rd) inch high volatility and $4k (i.e. 2/3rd) in low volatility stocks; then rending this dorsum to 1/7; 2/7 and 4/7 when the portfolio have grown to $14k.

3. Maximum place size as a % of entire portfolio: commonly 20-25% absolute max; some reduce to 15% Oregon less for large portfolios or bad stocks.

4. Maximum Equity Risk: No more than than than 2% of portfolio to be placed at hazard in any 1 trade – some take to reduce this 1 % Oregon 0.5% for larger portfolios or for more highly volatile positions.

5. In my book ‘10 Way Not to Lose Your Home in the Stock Market’ (due 2005) I wrote “What we also failed to realise was that instead of spreading our risk, we were magnifying our risk. For instance, using a halt loss of 2% portfolio risk, let’s state a bargainer have 10 positions. That agency if the market takes a sudden honkytonk and all Michigan are triggered, they put on the line losing 20% of their full portfolio value. Expand that out to twenty positions, then 20 x 2% = 40% of their portfolio is at risk. It can go on – it did happen. If you freeze or have got border loans, the devastation can be far worse….

Dr Elder mentions to the 2% hazard regulation as protection against shark attack and widens the conception further to a 6% regulation to protect against pirana attack i.e. to fold out the whole portfolio if it drops by 6% inch the past month.

Taking this to its logical extension, Dr Elder depicts how, using this strategy, also restricts bargainers to three places (at 2% risk) to begin off with, until some of them lift into profit, before gap any additional positions.”

(Readers may wish to mention to my Home Survey course of study faculty on Money & Hazard Management which is based on and includes Daryl Guppy’s Share Trading & Better Trading books and includes my portfolio tools - available at our site. Also mention to books by Louise Bedford (e.g.Trading Secrets) and Dr Alexanders Elder (e.g. Come into my Trading Room) for additional explanation.)

In the adjacent article I discourse how we utilize the Atkinson Portfolio Planner to guarantee that the following planned hazard and money management criteria are met:

1. The upper limit sum value spent in each volatility grouping

2. The upper limit sum value spent in any sector

3. The upper limit place size as a % of entire portfolio

4. The equity hazard for each position

5. The concerted sum portfolio hazard exposure