Allocation Matters

Last week, I highlighted the importance of trading the best stocks.

And it is the most essential part of my system.

The second thing is allocation.

Allocation is simply the percentage of your stocks in specific industries or individual stocks.

As an options trader, my allocation is based on volatility.

I like to trade stocks that are highly volatile. This means the stocks pay high premiums and jump around between highs and lows frequently. My portfolio can swing by tens of thousands in a week. 

Some people prefer lower-volatility stocks. These stocks pay lower premiums, but a portfolio with them won't swing around like crazy as often.

Many stocks fall right in the middle.

With allocation, we can also trade  20% of our portfolio in high-volatility stocks and 80% of it in medium-volatility stocks.

Finding an allocation that works for you is something to carefully consider. It can determine whether you will feel like a success or failure. Set yourself up for success and take some time to reflect on this before you commit to a stock to trade.