Portfolio Considerations of a Trading Strategy (Part 2)

In the last post I explained how portfolio considerations make a trading system out of a trading strategy. I argued that commercial interests (e.g. newsletter writers, trader education firms, and other subscription services) care little about our real money portfolios (i.e. overall success): they just want us to pay for their recommendations.

A strategy without portfolio considerations is not a viable trading system. Without guidelines for position sizing (including deleveraging), I have no idea how likely it is to fail. Without further study to determine position sizing guidelines, I can only consider myself lucky when I trade it and make money. I basically took a shot in the dark… a gamble.

As an aside, discretionary traders gamble in this manner on a semi-regular basis and one harmful consequence is an increased likelihood of further attempts. Since they made money last time, the next time they may gamble with a larger position size. Eventually their luck will run out and they will give back some of what they made or, in catastrophic circumstances, much more. This partially explains how the bull and bear market cycles perpetuate themselves.

Back to the main: since commercial interests only offer trades (A) and since trades without portfolio considerations are not viable as trading systems (B), commercial interests are not viable as trading systems (C). If A = B and B = C then A = C. This means commercial interests do not care about our success as traders. What’s left? The opportunity for them to profit on our monthly payments or tuition fees.

That’s optionScam.com.

I would claim that commercial services for retail traders are a giant scam. I challenge anyone out there to prove me wrong.

I do not attempt to make significant money with trading strategies until I do the further research to make trading systems out of them. As a “small” position to generate enough profit for dinner and a movie it might be fine. How about as a substantial position to generate enough profit for the mortgage every month?

I would never ever try. My risk of losing much more than expected is just too great.