Due to some feedback, I have created a easily trackable and tradeable "Model 10 Portfolio" with an inception date of 6/30/2012. My goal is to create a "True" real-time portfolio that can be compared against a benchmark to generate a track record.
Here is my methodology: Through the years, I have fine-tuned my technical skills and strategic outlook on how to actually trade these markets. From that I have created a platform/system that I believe can be replicable in any market conditions. If you've been following my blog since I started posting tradeable charts at the beginning of the year, my style is to continually trade the "bell-curve" of the probability spectrum. I do not trade the tail events. It has taken me an unbelievable amount of time, testing, statistical analysis and actually putting real $ to work both with success and many failures to have this platform come to fruition.
So as of 6/30/2012, I took all the "Real-time" trades that I posted on this Blog and actually put my real capital to work in and have created what I will call my 10 name Model-Portfolio. This portfolio will have anywhere from 0 to 10 positions on at any time. Positions will be both long and short depending on chart patterns and market environment. Each position will be a 10% weighting in the portfolio unless I choose to overweight (double-up) or underweight by taking gains (cutting position in half).
Each position will have an upside price objective (long trades) and downside price objective (short trades). I will lay out my risk to reward parameters as I do on my posted charts or write-ups. With my belief system and methodology that technical analysis is superior (charts don't lie) combined with a statistically significant risk-management system, superior returns can be generated over time.
Example: Almost every trading example or tradeable chart I've posted has come with a defined quantifiable risk to reward ratio that is to be expected. Let's look at a losing example (afterall only looking at winning trades isn't realistic!) that has actually been a "live" trade in the model portfolio. On July 11 I posted a chart and trade in which I shorted Disney stock at $47.22. My risk-management parameters where that I had downside price ojectives of $41 & $38-37....but was only willing to take risk up to $49.20 where I would get "stopped out" at a small loss. So in reality my risk was $2 and my reward was $6 and up to $9-$10. If you look at it on a percentage basis my risk was -4.2% and my reward was +12.7% and up to +19-21%. So this trade did not work out and I got stopped out at that -4.20% loss.
This is a perfect segway into how over-time this model portfolio system can produce profits over time. I'm going to move onto a hypothetical scenario which includes this 1st DIS trade. Instead of doing 1 trade let's branch out to an example of 4 trades. The hypothetical scenario would be using the exact same DIS risk-management parameters where my risk on all 4 trades was the same -4.20%. My reward on all 4 trades is that 1st price objective of +12.70%. Let's assume a simple success rate of 50%. I would have 2 profitable trades of +12.70% each and I would also have two losing trades at a -4.20% each. Add all 4 trades together and you have a total return of 17% (12.7 + 12.7 -4.2 -4.2). Now divide that 17% return by the 4 trades and you get a total return of +4.25% on the hypothetical portfolio. Amazing how a 50% success rate provides a significantly positive return just by using a proper statistical risk-management system. Now 4.25% doesn't sound like much, but remember most of these chart trades hit price objectives in a matter of weeks and or a few months, so the portfolio is never dormant. It is always active. So as soon as those 4 trades are closed there is much more time in the year to continually reinvest that capital and do the same thing over and over again. If you can turn the portfolio over 2 or 3 or 4 or 5 times a year...you can see how returns can be generated quite nicely. Now this example is assuming a 50% success rate, which I feel given my technical analysis edge, is low. If you increase the success rate while maintaining my risk-management system, you can really start to produce superior returns over time.
Here is a performance chart of the Model portfolio against the benchmark S&P 500 since inception of 6/30/2012. Below is all the opening and closing transactions as posted on the blog since inception. Grey boxed symbols below are still open positions....I will keep the Model 10 portfolio on the Right hand column with all open positions and current cash positions. I will make chrystal clear on blog posts of any Model 10 adjustments. I will also continue to post other charts that are tradeable but make note if they are not in the Model 10.
