The trading portfolio represents a detailed plan of the trading venture. It contains data as well as calculations that lead to money distribution during an allocated period. The allocation of available assets lies at the core of a trading portfolio, and thus it’s important to calculate various elements that create risk during purchase or sale of shares.
If there were software like QProfit System for the stock market, then the portfolio wouldn’t matter. But software for automated trading of shares doesn’t exist, and thus portfolio is the only thing that can make a difference between profit and loss.
Key concepts of portfolio creation
Three thoughts lie at the core of every successful portfolio, and they are the risk, expected returns and dependence.
The risk is the number or percentage that represents the amount of risk that every trade has. The scale of the risk depends on the amount of the money you invested as well as macroeconomic factors that affect shares you will purchase. A smart way to reduce the risk is to spread your capital on several types of shares. If one stock option fails to deliver, then there are others that will replenish your pocket.
Expected returns represent the projected profit. Entering trades without a clear vision of the expected returns isn’t wise as it doesn’t give you enough space to deal with unexpected things. The figure you come up with should represent anticipated returns from the investment. Another number should be there to represent the expected returns of all active trades.
Now, dependence is hard to explain in several sentences, but we will try anyway. When you buy shares, you depend on them, or to be more precise you depend on factors that will have a positive effect on the value of those shares. Being dependent on stocks of one type is terrible because you don’t have the capital to invest in trades that might pop-up in the meantime.
Familiarize yourself with stocks
You shouldn’t jump in the stock market as soon as you read an article about someone who managed to become wealthy through trading shares. Take your time and learn. Read articles and books, watch individuals that talk about shares and how they work and practice. These are the ways that will help you familiarize yourself with the stock market, and they will open a path toward success. And remember, start with a small capital and re-invest the profit you make.