FINANCE ASSIGNMENT

Finance Assignment



Finance Assignment

The investor's portfolio should be structured with an asset allocation consistent with his benchmark. There are five basic asset classes that I recommend; stocks? bonds? cash? real estate and commodities. Set the allocation by choosing what percentage to allocate to each of the asset classes. Investors may choose to change the allocation at times? but try to have a good reason for doing it? so short term reactions don't destroy the long term strategy. Don't try to time the markets? because it doesn't work over an extended period of time.

Think of the portfolio as though it was a sports team. Investors need an offense and defense. The defense will help protect portfolios in down markets and the offense will help it grow in up markets.

Stop Protocol:

Once you enter a trade at the stated entry price or within the acceptable 10 cent slip level there are several criteria we use to protect ourselves from losses? as well as protect profits? while still allowing some room for volatility. During the trading day? I like to think of these as hurdles? moving from one to the next as the trade progresses.

Hurdle 1: After entering the trade at the stated entry price? watch to see if the trade goes 10 cents in your favor FROM THE STATED ENTRY PRICE? NOT YOUR FILL PRICE. If it does not go 10 cents in the trade's favor from the entry price before it goes 10 cents against the trade? exit the trade 10 cents against your trade and watch for another entry opportunity.

Issues: This strategy has protected us against what I call getting “tagged-in” only to head straight to the stop-loss. To execute this strategy? a trader needs to be comfortable paying the extra commissions if the trade comes back to your entry. Also? another entry here does not count as a “second” entry. If you are uncomfortable with this strategy? don't use it and use the stop level as your exit.

Hurdle 2: Once the trade is in your favor 10 cents beyond the entry price? keep the stop loss at the stated stop loss until the trade hits the 50% to Target level.

Hurdle 3: At the 50% to Target level? move the Stop Loss from the stated stop loss to a breakeven level at the STATED ENTRY PRICE? NOT YOUR FILL PRICE.

Hurdle 4: Once the trade ticks within 10 cents to the stated Initial Profit Target? move the stop to a Profit Stop at the 50% to Initial Profit Target level.

Hurdle 5: Once the trade hits the Initial Profit Target? determine if the trade is zooming past your price (in other words? it would be a struggle to exit the trade at that price as it is trading so strongly in your favor it has already surpassed the Initial Profit Target before you can get your order in). If this happy situation is occurring? stay in and trail with a profit stop? initially at the ...