Invest and Trade Profitably with Jon Johnson

What percentage of your portfolio are you putting into your plays? Is it 2%, 5% per trade or what?

August 30, 2000

It is best to put no more than 2% to 5% of your portfolio into any one play. That means you are not going to risk anymore than that on a play. To further clarify, you can put more money at risk, but you are not going to take more than that amount of loss. When you are first starting it is hard to keep emotion out of the way and let plays work for you. They will move up and down intraday and day to day, and your brokerage account will reflect that. You have to get used to that. But, as long as the play keeps to the pattern it is important to let it work for you. We pick plays so that we can set stops with support and resistance in mind that keeps our risk/reward at a level that will allow us to win on a majority of plays. Typically that is a 3:1 ratio, i.e. we can gain $3 minimum for every $1 we risk. So, if a play has a potential to return $9 by running to a resistance point or Fibonacci extension we are willing to risk $3 to the downside. By keeping that risk/reward ratio, by not risking more than 2% to 5% of your account on any one play, and letting plays that are holding their patterns and reason for the play work, you will make money. As long as you let your winners work for you as long as they are trending in your direction, taking partial profits at logical points, and then keep your losses low by the methods described above, you can be wrong half the time and still make good money. Our ratio is well, well above that level so if you stick to your rules you will do well.

Log In

Forgot Password