MiniBahn's Portfolio Re-Balancing

The more prudent side of me has finally taken hold... with a significant effect to the equity I put into my trading portfolio. Having reached my 2009 earnings target in slightly less than 6 months... I've taken the decision to put some money aside for a rainy day and hence pare down the equity in my 3 trading accounts by approximately 60%. Nonetheless, what remains is still a trading portfolio that's a healthy 3 times my starting equity in January 2009.

Taking account of seemingly countless advice to treat my trading as a business, I've also begun to better account for both direct and indirects costs related to my trading activities such as spreads, commissions, incidentals, etc.

Leverage has also been brought down from 100:1 to 50:1.

My risk management approach remains largely unchanged (for now), in that my daily at risk remains 3% of my equity and my risk per trade at 0.3%. Allowing for a maximum stop-loss of 45 pips, I will now be trading a maximum of:
- USD100/pip or 10 full lots per trade for a high-confidence trade;
- USD50/pip or 5 full lots per trade for a medium-confidence trade; and
- USD20/pip or 2 full lots per trade for a low-confidence trade.

It is hoped that once I've fully migrated all 3 of my trading accounts to ECN brokers and armed with my 'yet-to-be-earned profits', I will be able to reduce my daily at risk to 2% and my risk per trade to 0.2%.

Finally, and most significantly, I've decided to devote two-thirds (2/3) of my trading portfolio to intraday trades and one-third (1/3) to longer swing trades. This is a significant shift in time horizon for me and I naturally hope that it pays off. The daily pip-target still remains at 150-pips per pair for GBP/USD, EUR/USD, USD/JPY and GBP/JPY (even-though I've been struggling with EUR/USD and USD/JPY of late).

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Fixed Ratio Money Management

It's been a while since I last blogged about Money Management, what many consider to be the most important yet overlooked subject in trading. As one of the three (3) pillars of trading success (the other two being Mind and Method), I therefore feel that I have an obligation to share more of my thoughts on the matter.

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