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Dont Put All Your Eggs in One Basket

We talk very frequently about the need to diversify.  The old saying goes don't put all your eggs in one basket.  How very true that is for trading.  If you put too much into any one stock and that stock breaks down you stand to loose a large portion of your portfolio very quickly.  It's true that you also stand to make a killing but the downside risks are too great to ignore.  It always pays to diversify your portfolio and limit your down side.  It can be tough if you're not starting with much but even in a smaller portfolio the risks are still there.  

You may not be able to put 5% or even 10% into a trade and have it be profitable enough to make a difference.  In cases like that you need to weigh your risk tolerance pick the very best chart you possibly can find and then be prepared to get out quickly if it does not turn out as predicted. 

Why do we use 5% as a good investment level for each position There are several reasons.  
5% allows us to be very diversified and take many positions in stocks. 

It also allows us the freedom to double down without risking any more than 10% of our overall portfolio.  There are situation when doubling down is very helpful.  We've made use of that very recently in some trades that initially went south on us.  Doubling down when the chart was set to bounce allowed us to exit those stocks much easier and quicker than waiting for our original buy point to come back up.  

By only risking 5% in any position our overall risk is quite minimal.  We can stand to be wrong on occasion and not have to worry about a complete melt down of our portfolio. 

It all comes down to your own risk tolerance in the end.  Using a strategy to reduce your risk while not sacrificing your ability to make a decent return is the best approach.  Think about it the next time you're tempted to put too many eggs in one basket.  You may end up with egg on your face rather than money in the bank.





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