Quantified Trading Strategies with The Machine: How to Build a Stock Portfolio

One of the most important principles of managing your money is using a portfolio-based strategy of holding multiple positions at a time.

Using a portfolio strategy with multiple positions is an effective way to grow and manage your money. An additional key benefit of a portfolio-based trading and investing strategy is that it is an excellent way to lessen corporate risk.

You don’t hear much talk about corporate risk among the stock pickers on TV who have a different stock every day that they encourage traders and investors to focus on. But for those trading and investing in stocks, corporate risk is a factor that must be taken seriously.

As Larry Connors, founder and CEO of TradingMarkets pointed out in a recent presentation on managing money using The MachineĀ®, it is impossible to know the future of any individual stock. This is why using multiple positions to avoid corporate or “single stock” risk is at the core of trading and investing with The Machine.

Larry said: “At any given time something negative could happen to a stock … take a look a few months ago with BP and the oil rig disaster … take a look at Goldman Sachs when the SEC came after them and the stock lost over 30 points in one day.”

GS April-July 2010

And the financial commentaries on cable TV and online do not make the task any easier – especially for those seeking to manage their own money in an objective, professional manner. Larry warned traders and investors of these potential pitfalls earlier this year:

“All day long you go on television or on the websites or in the newspapers, there are people picking stocks. That’s not the way to professionally manage your money. Individually picking stocks and trying to figure out which one is going to go up is basically no different than trying to pick a winner at the horse track. That’s not professionally growing your money.”

“What you want to do,” Larry explained, “is to build a portfolio of multiple stocks and exchange-traded funds (ETFs) that you’ve been able to identify that have historical edges. And then create a portfolio that takes advantage of these edges whether the market is rising, declining or going side to side.”

Balance Portfolio Equity Curve Chart

Trading multiple positions rather than engaging in “stock picking.” Identifying historical edges rather than trading on opinions and rumor. This is the future of active management for a growing number of traders and investors.  From individuals to professional money managers, more and more people are managing and growing their money with the help of The Machine.

Adds Larry:

“We do not want to be gambling with our money. We want our money to be growing safely and conservatively over time. So we make sure that we use multiple positions in our portfolio.”

If you are looking for an objective, quantified way to build portfolios that can outperform regardless of whether markets are going up, down or side to side, then click here to learn more about The Machine. The Machine is the first financial software that helps traders and investors combine backtested, high probability trading strategies into quantified high performance portfolios.

David Penn is Editor in Chief at TradingMarkets.com.