Last Week's Theme: Progressive Exposure
Specific Day 1 & 2 rules to use when going from cash to fully invested
Managing risk when going from cash to being fully invested again is important, and one effective way to do it is through progressive exposure. This means only adding exposure when you're making progress on your previous buys.
There are three benefits to this approach:
Reduced drawdown because you are only increasing exposure as your account makes progress.
Reduced emotion/hesitation on new purchases - your previous profits allow you to trade freely.
Increased momentum & sizing as your account gets rolling.
Again, the main principle to master with progressive exposure: only initiate more positions when you are making progress on your previous buys.
When implementing this concept, there are specific rules to follow.
Day 1 (going from 100% cash to invested again):
Only 1-2 purchases are allowed
Each position size no larger than 12% of the account
Total equity risk cannot exceed 1% across all buys
Purchase 3,4 can be increased size using profits from buys 1-2 to properly manage risk
The goal on Day 1 is to get positioned so that you can partake in any further upside and severly limit your drawdown if things go against you.
Day 2 (if sitting in profit from Day 1):
1-2 more positions can be opened
Sizing is now not capped, using open profits to free-roll new positions
Now just rinse & repeat this cycle for all upcoming purhcases.
What if my purchases on Day 1 don’t show me a profit by Day 2?
You don’t open any new positions on Day 2. It’s that simple.
Progressive exposure is all about managing your current portfolio’s performance and letting that dictate the actions you take in the following sessions.
What happens if my 3rd buy stops me out for all of the profit that I was risking with buys 1 and 2?
You sell your positions in buys 1 & 2, and you’re now back to cash.
Again, the goal is to make progress - not be right or wrong. If you aren’t making progress, it’s likely that 1) your entries weren’t correct or 2) the market environment isn’t that good yet.
In both scenarios, you shouldn’t be long!
I’m currently working on a free High Volume Close email course! This will be an awesome resource and distill every key point you need to master this setup.
Sign up for the waitlist here (it will go live later this week):
Here’s every buy I made this week & how I followed the exact rules I outlined above:
Quick Breakdown Of Each (stops and more in depth walkthrough in paid version below):
Buys #1 & 2: VKTX (11% equity) & BMEA (5% Equity)
Both filled on limit orders and showed quick profit. Felt confident to then move this open risk into IOT.
Buy #3: IOT (17% equity)
Wasn’t flying necessarily but after BMEA got stopped for even my open risk decreased. Was risking ~75% of VKTX profits.
Buy #4: TQQQ (25% equity)
With only IOT + VKTX long & VKTX showing 11% profit, opened TQQQ. This was less than 0.5% equity risk, so if I got stopped out on everything they would be papercut losses.
Buy #5: TSLA (34% equity)
Opened this on Friday when IOT, TQQQ were startting to work big. Again, risked those profits and got an entry where I was only risking 0.25% of my equity.
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So, what’s the point?
In summary, managing risk when transitioning from cash to being fully invested again is crucial, and progressive exposure is my favorite approach to do so.
By only adding exposure when you're making progress on your previous buys, you can reduce drawdown, control risk incrementally, and build momentum.
It's important to keep in mind that the goal is to make progress, not to be right or wrong. If your entries weren't correct or the market environment isn't favorable, it's okay to sit in cash to take feedback from the market and wait for the right opportunities.
Progressive exposure means only adding exposure when you're making progress on your previous buys
The approach offers reduces drawdown, reduces emotion/hesitation, and allows you to build momentum with increased position sizing
The goal is to make progress, not to be right or wrong
Effective risk management and following these rules and principles can help you position for a big move to the upside while severly limiting your downside
Hope this has been helpful & talk to you all next week,
p.s. the paid version continues below where I walk through each one of my buys this week in greater depth ↓
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