SCOTT WELSH TRADING BLOG

Setting Up a Simple Portfolio

Setting Up a Simple Portfolio

Aug. 18, 2021

What can you get for free on the internet?

Nothing, right?

Just a bunch of interruptions, false claims, and vague hints.

But remember what Turtle-inventor Richard Dennis said after creating a $200 million trading account?

“I always say that you could publish trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Almost anybody can make up a list of rules that are 80 percent as good as what we taught people.”

Is that true? There’s a way to find out.

This week we’re going to set up a simple trading system and a very simple portfolio. All rules will be given.

Anyone can follow it using any size of account. A regular person could use $100,000, $10,000 or $1,000 to get started. [Note: I always recommending starting with at least $1,000. If you don’t have $1,000, then hold off until you can save up at least that amount.]

But to be that flexible, we’ll have to use Forex. No other instruments are as flexible or as easy. Even micro Futures contracts come with a lot of complexity and lack of adjustability. So, if you don’t know Fx, you’ll have to take the time to get to know it.

And we’re going to focus. We’re not going to diversify because someone told us to. We’re only going to use things that make the best sense, and that means we’re going to use a trend following system.

Trends have been around for centuries and will be around for centuries more. Trends are more eternal than the idea of buying-and-holding the market.

Since we’re choosing trends, we’re going to only trade the trendiest things. In Fx, that means, of course, the GBPJPY. Nothing else really comes close.

Last, we’re going to use “loose-fitting pants.” Loose pants fit everyone and loose trading rules fit every market.

Here’s a simple system that fits that profile.

RSI SIMPLE Master Trend (4-Hour GBPJPY)
Long Entry: Enter if price closes above RSI Overbought (8 Length 70/30 Overbought/Oversold)
Short Entry: Enter if price closes below RSI Oversold (8 Length 70/30 Overbought/Oversold)
Target: 325 pips
Short Target: 325 pips
Stop: 130 pips

Could we use a different system? Sure, we’ve talked about at least a dozen other possibilities. But this one fits nicely with what we’re trying to do.

Does it fit our criteria? Let’s see. Does this system have loose restrictions? Are there possible problems with these rules?

We’re long-term in nature, so that’s good. Long-term systems (4-hour or longer) usually hold up well over time.

We’re using indicators that have been around a long time, so that’s also good. RSI has been around for decades.

The reward to risk is high, and that’s a guideline that’s also been around forever.

But there is some optimization.

We have an optimized target and stop. Potentially, those could break down.

However, they’ve held up from 2003-2021. That ranges from the end of the internet meltdown to the Great Financial Crisis to flash crashes to interest rate changes to a pandemic. A lot has gone on since 2003 and these optimized values have held up.

If they’ve held up for almost two decades, what are the chances they’ll last for another two decades?

Last, here’s how this simple system did trading 1 lot each time:

That’s a lot of money over that time period and not terrible drawdown.

Here are a couple of sample trades that could be taken manually very easily:

These Long trades were taken when the RSI closed into Overbought. Then we just followed the stop and target rules.

[I would prefer a robot take these trades, but manually would be relatively easy.]

This would be enough to trade on its own– if a trader were committed. And it’s totally free for anyone to use.

But we’re going to add another component to our portfolio in our next Newsletter.

Join the free Newsletter list here to get the details.

 

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.