Hello traders, on the last part let’s talk about how to maintain your established people-based portfolio after the Verification and Validation (V&V) process. Because doesn’t a new car also at some point require service?!
Risk Management:
Mainly, stick to your strategy. From my point of view, the first thing to do for a proper Risk Management under the V&V process is to filter out your crème de la crème of the traders as per your requirements. Still, no risk means also almost no gain, but the risk has to be spread. How to do that? Create a strong people-based portfolio with a diverse trading portfolio. So if someone still goes “belly up,” others are there to back up the loss. You need to understand that you cannot eliminate the risk entirely, but you can spread the risk – at the end of the day we are all here to make money. Be strict, make each and every trader pass V&V first, good traders perform well over the long term, so don’t get attracted by first impressions!
Money Management:
I am personally acting without emotions; it might be that you have within your portfolio a “cash cow,” but you never know what happens. So, therefore, all traders receive the same fund allocation. Once a day the gain is being deducted, 50% of the gain goes to the account, the other 50% go back to the people-based portfolio. All traders are for me on the same level, I let them act as a team, so I spread the 50% gain over all traders and do the same for losses. So each day we have the same requirements for all.
Ongoing revalidation:
Now the portfolio of 3 to a maximum of 5 verified Traders needs, of course, to be maintained. It’s not that after filtering out the “best” traders you should stop and just watch; that is irresponsible. The verified Traders should be watched continuously, on a monthly basis if they meet the requirements as defined in the Verification process.
Another criterion is the gain which is being checked on a daily basis, so if a verified Trader is losing money, his allocated fund will be refreshed. If a verified Trader is losing more than 20% in one day of his allocated fund he gets “banned,” each verified Trader may lose once up to 20% of his allocated fund, or twice up to 10% within a month, if that is exceeded the verified Trader gets banned, and will be replaced by another verified Trader that will be waiting in the pipeline after described V&V process. A banned verified Trader will always have the chance to get back, but only if he passes again, from scratch, the verification and validation process.
Another possible way for a verified Trader to get banned is if a new approved Trader out of the V&V process performs better than one in the active people based portfolio. “Trust is good, control is better!” (Lenin)
Everyone needs to define for himself all their values. I wish all of you successful trading!
Best Regards
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