How Much Money Should You Allocate? by Torbjorn Iwarson
If this question is niggling at you, consider how risk-averse you
are. That may give you the answer you’re looking for.
Trying to figure out how much money you should
allocate to your trading is a difficult task. How
risk-aversive are you? To get the answer, I will
look at the traditional stocks and bonds and a trendfollowing
method applied to gold, EUR/USD, and the Standard & Poor’s 500, covering different asset classes.
THE TRADING SYSTEM
I use point & figure for the signals, using 2% sized boxes and
three-box reversals. Point & figure was the first method I learned
20 years ago and I have found it mimics the way most professional traders think if they are not using some other system.
Using this method on your own trading strategies, you can
back-test how much you should allocate to your trading
strategy and how much you should keep in other assets such
as stocks and bonds.