Managing Your Cash Position in the Stock Market

I’ve been asked a lot over the years about how I manage my cash in the portfolio – knowing how much stock exposure to have and how much cash should I have on the sidelines. 

My trading strategy is very simple, and it isn’t because I’m a man of shallow understanding, but it is because of how complex the market is, and how incredible it is at drawing out the emotions of fear, greed, anger, joy among other feelings. 

I never trade more than 10 positions at a time, and each position represents 10% of my portfolio’s value. 

Pretty simple right? 

When there is uncertainty that is not a time that I want to be 100% long or 100% short. Traders lose their fortunes by doing so. But then I hear from people, “But I have to live off of my trading!”. Well, if you are planning on doing that long-term, you better trade smart, and in such a way that you are not exposing your capital to ungodly sums of risk when the direction in the market isn’t readily apparent. 

Because when the market doesn’t have direction, that is when you are most prone, as a trader, for major losses. 

Take this market for instance. The entire year, the market has been range bound. It simply hasn’t moved. There has been maybe once or twice, the where I was more than 50% long. Compare that to last year, when I spent much of the year well over 50% long. Why is that you ask? It is because of the market uncertainty. Yes, you might not make the gains you’d typically come to expect by being 80-90% long all the time, but in this kind of market if you are 80-90% long you are likely struggling and by struggling, you are probably losing your shirt. 

You can force your desire for profits or your will upon the market. Ultimately the market does, what the market wants to do. Who saw the big post earnings sell-off in Apple (AAPL) on Tuesday? Not me. 

That’s why when you are trading the market and a direction or trend does not exist, that is the time when you increase the cash position in your portfolio and lessen the equity exposure. 

When you are looking to build your portfolio, you don’t go from 0% long one moment to 100% long the next. Haven’t you heard that a person who tests the water with both feet sinks to the bottom? 

Instead, you build up the portfolio over days, sometimes weeks. As the market confirms a trend, you add more exposure to the portfolio. I like to have a base of existing positions showing profitability before I get too heavy into the longs. 

In essence, and I’m trying to keep this post from getting too “wordy”, don’t feel like your cash in a range-bound market isn’t making you money, it is actually doing something far better and that is keeping you from losing your portfolio, because range-bound markets are the king culprits for portfolio capitulation for active traders, and if you don’t recognize that, you might find yourself ultimately watching the stock market from the sidelines. 

If you are interested in trading with me and learning my profitable method of swing-trading, I would encourage you to join me in the SharePlanner Splash Zone, where each day I post all of my trades and analysis on the market and other trade setups. With your membership and Free 7-Day Trial, you will receive all my trade alerts in my chat room, as well via text (international included) and email.