Limited-Risk Investing In A Smaller Account

An Experimental Approach

We'll close with an approach we haven't tested yet, but which might be promising:

  1. Buy equal dollar amounts of our top ten names, with trailing stops 10% or 15% below the current market price (It's important to remember here that trailing stops will not protect you if a security gaps down below your stop - say if it opens down 30% the day after a bad earnings report). 
  2. Buy optimal puts on an index ETF such as SPY to hedge against market risk. This video shows how to do that: 

 3. Roll your index put protection before it expires. 

 4. Each time one of your trailing stops causes you to exit a top name, replace it with a top name from the current list. 

Again, we haven't tested this approach yet, but it seems like it might be promising. 

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