How our model portfolio accounts work
In addition to providing specific entry and exit points for all stock and ETF picks in our nightly swing trading newsletters, we also provide exact share sizing based on a model trading account. This provides our members with an actual portfolio management service that can be replicated, rather than just “stock picks.” As such, we have been able to accurately track the performance of every trade pick since our company’s inception in 2002. Here is how it works…
- We always list the specific number of shares we are buying (or selling short) for each swing trade, which is based on a model account value of $50,000 ($100,000 total buying power with standard brokerage margin). This is a fixed model account value that stays the same from day to day (does not increase based on cumulative gains). Based on the model account value of $50,000 cash, we predetermine and provide the exact position size of each stock and ETF trade by assuming a maximum capital risk of approximately 1% per trade ($500). If, for example, we enter a new trade that requires a 2-point stop loss, the maximum position size would be limited to 250 shares ($500 max risk / 2 points = 250 shares). Depending on market conditions, we sometimes risk less than 1% ($500) per trade.
- Position size for each trade is always reported to members ahead of time so that they may easily determine their own position size, based on the actual size of their individual trading accounts. For example, a member with a $25,000 account should theoretically be able to mirror the percentage of our returns simply by sizing all his trades at 50% of our listed share size for each trade. Conversely, a member with a cash account value of $100,000 could simply double our share size for every trade.
- We are conservative in our actual trading with real money. First, we risk only 1% of account value for each trade. Depending on one’s own risk tolerance, a member could simply risk 2% of account value per trade and still be within generally accepted rules of risk management. Furthermore, we typically use only about 25% of the account’s total marginable buying power of $100,000 (on average). As such, a member would usually be able to double, triple, or even quadruple our share size in order to proportionately increase their returns, relative to our actual reported performance results. Of course, risk works both ways, so a member taking larger share size must be willing and able to handle larger profit/loss swings in both directions.
- Above all, we firmly believe in maintaining the same maximum capital risk for each and every trade, regardless of how good any individual trade setup may appear. Traders who “swing for the fences” on any one particular trade can not be successful in the long-term. Rather, consistently profitable traders are successful because they continually work a small mathematical edge on a large number of trades. Realizing a gain of several percent each month is much better than making 25% one month, but losing 25% (or more) the following month. This conservative approach is the reason we have been consistently profitable and have outperformed the main stock market indexes by a wide margin since 2002.
Click here to learn more about how we track and report our trade results, and to see our actual historical trade performance of the past 10 years.