Time scale and risk element

We assume that the readers are disciplined and trust statistical tools.
Furthermore diversification and tracking enables some higher risk tolerance.
The factor that limits diversification is ignorance.

The highest risk element is the trader’s psychology. Various personal biases cause illogical trade decision.
To remove the psychological element we limit time scale exposure (opposing trends), and add exit tactics per transaction.
The higher the risk the shorter should be the exposure time.
In high-risk trades it is unwise to gamble more than 1% of the portfolio on any given bet. Due to fees involved, this limits the ideal investment portfolio to 150K USD or above [some of this sum may be paper-traded].

Generally it is more important to analyze long-term investments than short-term investments. With swing and daytrading there is a chance of “paralysis out of analysis” which is unhealthy. With buy-and-hold in-depth due diligence is helpful. Getting into trade should always require longer analysis than getting out of trade (selling out). Tending a portfolio is like tending a garden: if we leave bad stocks in our portfolio it reduces motivation and revenue and makes us less rational. Better cut losses early.

Psychologically the easiest position is buy-and-hold. You believe that some asset will rise and you go for it no matter what.
The pro of this tactics is basic inability to time the market and the uncanny ability of market to recover.
This strategy may actually work with several classes of assets:
1. Index etfs
2. Long term bonds
3. Allocation/diversified etfs
4. Rule-based/strategy efts
There are simulations showing that this strategy also works with leveraged assets as long as their volatility is not high.
However, markets change all the time and some strategies need to be rebalanced accordingly.

Position trading utilizes long-term trends that are visible on weekly scale and requires weekly monitoring.
The long-term trends may include:
1. Winner individual low-volatility stocks continuously outperforming markets [for example when writing Berkeshire-Hathaway, Nordstrom etc]
2. Glamour growth stocks of companies in small sectors that are expected to grow very fast [for example, cybersecurity companies]
3. Forex trends [USD/YEN, USD/EURO]
4. Commodity trends [deflation/inflation, contango etc]
5. REIT [employment, security,…]
6. International trends
7. Sector trends
8. Cap-related trends

Swing trading utilizes short term trends that are visible on hourly scale.
The relevant assets should be checked 3-6 times per day, and may require pre-market and after-hour trading.
1. Fear [volatility]
2. Leveraged/Inverse commodities ETFs
3. Forex/International [for example, USD/RUB]
4. Arbitrage [IPO, M&A, …]

Occasionally the assets become so volatile and the understanding of underlying dynamics so accurate, that day trading [15 min scale] is justified
1. Following critical news announcement
2. Rebalancing of the indices
3. Crisis management
4. Highly volatile ETFs/stocks
The position is highly dangerous and should be used with care

Please notice that we exclude from our system margin trades, option trades, short trades, spread trades since they are just to risky for our personal style.

There is a question of the required cache reserve.
The limitation is due to
1. Drawdown
2. Personal financial stability
3. Opportunity cost/fear of missing out
Currently we can either hold ~20% of the portfolio within the trading system in cache or have readily available matching funds outside the trading system in regular bank account.

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