Description of portfolio

Live swing trading portfolio from Phil Stock World

The purpose of this virtual portfolio is to teach how to become consistently profitable by following some basic trend-following strategies using stocks and/or options. All virtual trades are posted and updated live in the portfolio. Our focus is on discipline and money management rather than entries. Our goal is to show that by keeping losses very small and letting run our winners it is easy to be profitable in the long-run.

- Most of the trades are directional, naked options, no spreads (or very rarely).
- This portfolio is targeted to trades that we usually hold between 2-3 days and a couple of weeks.
- All trades are posted live in the swing trading portfolio as soon as they are entered and most of the time in comments as well.
- We use different strategies in this portfolio, one of them being the 5MA strategy (explained in link on the left). But we do not trade this strategy only. Most of our trades are based on technicals, support/resistance, patterns, etc. The constant is that we always define our stop when we enter the trade and we always respect risk management and position sizing.
- For most positions, unless indicated, we buy ATM or slightly ITM naked options (calls or puts). We usually buy one month out, and never hold current month options 2 weeks before expiration.
- R is how much we risk on each position. It is the difference between the entry price and the stop.
- R should not be more than 2% to 5% of your portfolio.
- R is constant. It means that we should always lose the same amount when our stop is hit. If we risk 2% of your portfolio on each trade and our portfolio is $100K, then we should ALWAYS lose $2k when we get stopped-out. And it does not matter if the stock dropped 20% or 1% from our entry.
- By defining our stop and our risk BEFORE we enter each trade, we can then calculate the number of contracts we need to buy to keep our loss at 1R when we get stopped-out.

An example of how we calculate position size:

Let’s say we buy AAPL calls when AAPL is at $152.25.
$151 is our stop.
Delta of the May $155’s is 0.50
Our total account is $25,000
Our risk on this trade is 2% of $25,000 or $500
Our risk is $1.25 on the stock
Our risk or maximum loss per option is $0.625, which 0.5 (delta) X $1.25 (risk on stock).
The number of contracts we should buy is our total risk divided by the risk per option: $500/(0.625*100) = 8