Aggressive Trading 10/30 Rule

Course name: Advanced trading techniques

An investment portfolio consists of all financial assets and securities such as stock, bonds, currencies, and commodities that investors need to enter and exit a trade and try to profit. Portfolio management is the name given to the strategy that an investor chooses by appropriately selecting investment options by evaluating long term goals and risk tolerance.

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Aggressive Trading 10/30 Rule

Portfolio management allows an investor to methodically analyze all the factors such as strengths, weaknesses, opportunities, and threats of the investment options he has at his disposal. A professional and experienced portfolio manager is hired to build a strong investment portfolio for the client. However, an individual investor can also build and manage his own portfolio.

The main focus of a portfolio manager is to magnify the expected rate of investment under a suitable level of risk exposure. Portfolio management may either be active or passive. Active trading involves consistent buying and selling of stocks , currency pairs or other high volatility assets, while passive investing is a long term strategy and involves index funds, mutual funds, or exchange-traded funds (ETFs).

Aggressive Trading

A typical investment strategy is based on the right balance of trade-off between the money that an investor is willing to invest, and the amount of return and risk he is willing to accept. Using investment to potentially maximize profits is the first priority of every investor. A feasible investment strategy is implemented after weighing both the profit and loss possibilities and risk tolerance which is the level of risk a trader is willing to take.

An aggressive investment strategy is one of the popular portfolio management style that give a chance to a trader to magnify returns but by taking a higher degree of risk. The aggressive style focuses on the capital appreciation and is could be suited to many young and aspiring traders who have small portfolio sizes. The strategy is based on capital appreciation that signifies the rise in the market price of the investment, which can be stock, commodity, real estate, and exchange-traded funds (ETFs).

The two terms relative to aggressive investment strategy are horizon and asset allocation. Horizon in financial terms refers to the current time and the time trader would need his money. Asset allocation describes how a trader chooses to distribute money across different asset classes in his portfolio.

The stocks vary from company to company. The assets are therefore categorized according to performance, and an investor group similar asset such as ETF, which is a fund that consists of similar stocks. An ETF can be invested in either large multinational corporations or small companies that promise a high growth in the future. Investors diversify their stock investment by trading in multiple types of ETFs.

Aggressive Trading 10/30 Rule

The 10/30 rule for risk management is a permissive rule that allows the trader to risk 10% on each trade, along with a limit of 30% of his entire portfolio. This rule is best for aggressive trading or for investors who have small accounts but wish to maximize the returns. For example, if a trader has a £10,000 account, he can risk a maximum of £1000 on a single trade and close to £3000 of his entire portfolio.

In simple words, if the trader risks £1000 in a single trade, he can further open two other trades simultaneously that amount to an additional risk of 20%, meaning £1000 for each of the two trades. But the total risks of the three trades should be no more than 30%. The 10/30 rule is considered to be the maximum level recommended in risk management. However, it is best for investors to slowly reduce the exposure to a safer level of the 5/15 rule.

Aggressive Trading Strategies

The main goal of the aggressive investing method is to attempt at securing greater potential profits no matter how big a risk. The aggressive approach relies on active trading with constant trading of assets on price movements rather than on passive trading that relies on ‘Buy and Hold’ strategy and is consider as less risky.

Many people confuse aggressive investing and active trading. The aggressive investing refers to the long-term activity of rearranging assets in portfolio and investors attempting to attain ‘Alpha,’ which is the difference between an asset that is actively traded as compared to an index or other passive modes of investing. In contrast, active trading refers to constant short-term trades and appeals to investors as there is chance for higher potential returns but poses higher risks as well.

The aggressive investing mostly revolves on giving more weightage of asset allocation to stock, currencies, and commodities, and little or less allocation to bonds. For example, if an investment portfolio is termed ‘aggressive’ if it has 80% stocks and 20% commodities. In aggressive investing, the composition of stocks has a direct impact on the risk profile of the portfolio. If a trader has only blue-chip stocks (a high valued company that has large market capitalization), then it is considered less risky.

Active trading involves holding the position for only a short period of time; the Day traders are known to accomplish hundreds of trades in a day where they can either achieve tremendous profit or considerable losses. The active traders emphasize trading in liquid and volatile markets such as stocks and Forex exchange where there are constant price movements, and the sheer volume allows traders to enter and exit a position easily.

The active traders take considerable help from technical analysis, such as price action that helps them to forecast future price movements effectively. There are three popular active trading strategies, and each differs on the amount of trade and time frame, but all three are suited for short term traders. 

  1. Day Trading

The ‘day trading’ from the name implies the buying and selling of assets on the same day the trade is opened and closed. This strategy is applied to take advantage of a certain event or situation that can influence the price of the stock. The day traders mostly use 1, 5, and 15-minute charts for speculating the stock price.

  1. Swing Trading

Opening or closing positions after every few days is called ‘swing trading.’ The strategy of the swing trader is to take advantage of price changes that occur in hourly or daily price charts.

The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.

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