Portfolio A:

65% allocation to Profit Taker 2 (Long only when SMI is bullish)

35% allocation to Breakout (Long only when SMI is bullish)

60% allocation to Breakdown (Short only when SMI is bearish)

40% allocation to Smart Money Index Trader (Short only)

This is a fairly easy system to trade. Positions are all bought on the open, and there would be a max of 20 stocks to deal with at any one time. When it's time to short the market, there will be a max of 11 positions open at once. The Smart Money Index Trader simply opens a short position on the S&P 500 (using SPY).

The following test results use 2-1 margin and accounts for margin interest, slippage, and commissions.

Yearly Performance Summary

Year	Days	Closed Balance	End Total Equity	Total Equity Gain	Gain %	# Trades
1995	365	$133,034.81	$150,813.89	$50,813.89	50.8%	198
1996	366	$167,913.39	$172,341.26	$21,527.36	14.3%	201
1997	365	$293,876.66	$291,779.42	$119,438.16	69.3%	127
1998	365	$525,340.25	$663,802.56	$372,023.14	127.5%	169
1999	365	$1,456,249.26	$1,412,435.60	$748,633.04	112.8%	182
2000	366	$2,294,117.28	$2,730,677.66	$1,318,242.06	93.3%	97
2001	365	$5,311,904.74	$5,959,607.68	$3,228,930.02	118.2%	133
2002	365	$12,629,280.67	$12,860,111.16	$6,900,503.48	115.8%	137
2003	365	$21,998,646.18	$25,027,947.57	$12,167,836.41	94.6%	237
2004	366	$39,755,998.47	$39,450,562.10	$14,422,614.53	57.6%	234
2005	365	$49,752,733.53	$52,084,061.18	$12,633,499.08	32.0%	236
2006	365	$95,456,368.36	$105,753,618.51	$53,669,557.33	103.0%	257
2007	39	$110,898,816.84	$110,898,816.84	$5,145,198.33	4.9%	53

CAGR = 70.89%/year

Wins = 1184     52.4%

Losses = 1077   47.6%

Percent Profit Factor = 2.21

Max DD = 29.53%

MAR = 2.40

Martin Ratio = 9.68

Longest Drawdown = 12.3 months

Portfolio B

100% allocation to Profit Taker 2 (Long only when SMI is bullish)

60% allocation to Breakdown (Short only when SMI is bearish)

40% allocation to Smart Money Index Trader (Short only)

Here's another example that uses fewer systems to diversify between. A maximum of 11 positions would be on at once. The results are outstanding, but putting too much into any one system can be a drawback with a large portfolio.

Yearly Performance Summary

Year	Days	Closed Balance	End Total Equity	Total Equity Gain	Gain %	# Trades
1995	365	$140,585.98	$144,239.25	$44,239.25	44.2%	110
1996	366	$157,138.48	$156,783.63	$12,544.39	8.7%	107
1997	365	$261,681.99	$259,815.00	$103,031.37	65.7%	74
1998	365	$481,521.78	$507,645.85	$247,830.85	95.4%	112
1999	365	$1,287,639.14	$1,249,015.00	$741,369.15	146.0%	115
2000	366	$2,193,065.35	$2,611,964.33	$1,362,949.34	109.1%	73
2001	365	$5,400,547.79	$5,304,694.76	$2,692,730.43	103.1%	105
2002	365	$11,817,965.86	$12,033,791.76	$6,729,097.00	126.9%	99
2003	365	$23,204,732.81	$25,305,329.45	$13,271,537.70	110.3%	158
2004	366	$38,516,274.61	$38,221,199.92	$12,915,870.47	51.0%	149
2005	365	$52,109,110.23	$52,658,921.39	$14,437,721.47	37.8%	161
2006	365	$91,913,910.79	$94,173,843.56	$41,514,922.16	78.8%	184
2007	39	$92,824,186.81	$92,824,186.81	$-1,349,656.74	-1.4%	31

CAGR = 68.6%/year

Wins = 790     53.5%

Losses = 688   46.5%

Percent Profit Factor = 2.25

Max DD = 29.53%

MAR = 2.32

Martin Ratio = 9.07

Longest DD = 13.0 months

Portfolio C

30% allocation to Profit Taker

30% allocation to Profit Taker 2 (Long only when SMI is bullish)

30% allocation to Breakout (Long only when SMI is bullish)

60% allocation to Breakdown (Short only when SMI is bearish)

10% allocation to Smart Money Index Trader (Long and Short)

This is a much more diversified portfolio of trading systems. All systems are used with 10 positions max per system, so there could be 31 positions open when the Smart Money is Long, or 21 when the Smart Money is short.

This is a serious portfolio of stocks, which is great for an active trader with a large account. Including the Profit Taker system helps smooth out results since it tends to keep making new equity peaks on a consistent basis.

Yearly Performance Summary

Year	Days	Closed Balance	End Total Equity	Total Equity Gain	Gain %	# Trades
1995	365	$138,097.83	$160,339.24	$58,718.34	57.8%	295
1996	366	$192,302.38	$200,931.22	$40,591.98	25.3%	353
1997	365	$303,789.73	$304,963.28	$104,032.06	51.8%	341
1998	365	$474,015.31	$610,065.73	$305,102.45	100.0%	373
1999	365	$1,346,954.34	$1,341,582.45	$731,516.72	119.9%	427
2000	366	$2,476,532.61	$2,797,364.50	$1,455,782.05	108.5%	388
2001	365	$5,274,330.31	$5,710,944.02	$2,913,579.52	104.2%	388
2002	365	$10,948,553.27	$11,272,687.76	$5,561,743.74	97.4%	401
2003	365	$20,127,175.06	$21,989,829.75	$10,717,141.99	95.1%	566
2004	366	$34,420,786.79	$34,320,821.64	$12,330,991.89	56.1%	599
2005	365	$41,582,027.45	$43,509,035.56	$9,188,213.92	26.8%	604
2006	365	$65,628,083.25	$74,117,034.74	$30,607,999.18	70.3%	645
2007	39	$75,319,008.05	$75,319,008.05	$1,201,973.31	1.6%	107

CAGR = 65.9%/year

Wins = 2682     48.7%

Losses = 2823   51.3%

Percent Profit Factor = 2.12

Max DD = 26.07%

MAR = 2.53

Martin Ratio = 12.47

Longest DD = 9.3 months

Portfolio D

50% allocation to Profit Taker 2 (Long only when SMI is bullish...5 positions max)

50% allocation to Breakout (Long only when SMI is bearish...5 positions max)

50% allocation to Breakdown (Short only when SMI is bearish...10 positions max)

50% allocation to Smart Money Index Trader (Short only)

I'm asked all the time whether one could trade a couple systems while keeping the number of positions held rather low. Well, it can be done, you would just skip any new trades if you have your maximum number of open positions in any one particular system (so if you already have 5 trades open with Breakout, you would ignore new orders to buy).

My research has shown that 10 positions per system is optimal, but since you're the one trading the picks, it's really up to you. Just beware that you're assuming more risk by spreading money between fewer positions. Still, the results are interesting.

Yearly Performance Summary

Year	Days	Closed Balance	End Total Equity	Total Equity Gain	Gain %	# Trades
1995	365	$141,697.57	$164,500.68	$64,500.68	64.5%	121
1996	366	$184,653.80	$182,853.43	$18,352.75	11.2%	128
1997	365	$288,578.97	$286,015.39	$103,161.96	56.4%	76
1998	365	$710,246.52	$884,166.89	$598,151.50	209.1%	103
1999	365	$1,733,862.27	$1,672,039.53	$787,872.64	89.1%	99
2000	366	$2,580,111.24	$3,074,147.41	$1,402,107.88	83.9%	70
2001	365	$6,189,679.66	$7,999,692.96	$4,925,545.56	160.2%	94
2002	365	$14,315,940.52	$14,490,794.22	$6,491,101.26	81.1%	101
2003	365	$28,757,743.33	$33,653,867.54	$19,163,073.32	132.2%	123
2004	366	$57,159,904.18	$56,611,723.18	$22,957,855.63	68.2%	120
2005	365	$57,726,240.16	$59,280,140.72	$2,668,417.54	4.7%	127
2006	365	$98,761,907.26	$114,790,330.15	$55,510,189.43	93.6%	143
2007	39	$110,263,752.32	$110,263,752.32	$-4,526,577.83	-3.9%	29

CAGR = 70.8%/year

Wins = 709     53.1%

Losses = 626   46.9%

Percent Profit Factor = 2.22

Max DD = 29.9%

MAR = 2.37

Martin Ratio = 8.14

Longest DD = 12.4 months

As you can see, there are many different ways to configure your portfolio. If you're new to trading, it's often best to trade a system that gives fewer signals (that way it's less likely that you'll make a mistake, and it's psychologically easier as well). I recommend trading the Smart Money Index Trader System...which only gives about 3 trades a year.

Thoughts on Adding Money To
a Trading Account

So what do you do if you're adding funds to your trading account? Do you add to positions or what?

First of all, it's a good idea to have a time-schedule for adding money to your account. It could be monthly or quarterly or based on some dollar amount in your savings. Whatever the case, write it down and stick to it.

When the money you added is ready to be traded (usually within a couple business days), I DO NOT add to current positions. Instead, I wait for new signals, and calculate how much to put into each position based on how much available equity I have (called RegTEquity) in my account (which is exactly how I calculated before...except now there's more in my account).

*****Note***************************

I can already see the questions coming in. RegTEquity is simply your Net Liquidation minus the market value of options you have. So if I have $100,000 net liquidation and $20,000 in options, my RegTEquity should be $80,000. I NEVER use how much I have in options to calculate how much to put into the other trading systems. They fluctuate too much.

************************************

For example, I might have $100,000 in RegTEquity. I then wire in $10,000. If I was dividing money between trading systems like this (when the SMI is LONG):

25% Breakout (10 positions) = ($110,000*0.25)/10 = $2,750 per position

25% Profit Taker 2 (10 positions) = ($110,000*0.25)/10 = $2,750 per position

30% Smart Money Index Trader = $110,000 * 0.30 = $33,000 in SSO*

20% SMI (LEAP options) = $110,000 * 0.20 = $22,000 in LEAP options*

So next time you get a signal from the Breakout system, you would buy $2,750 worth of stock...you would not add to any current positions.

*With the SMI system, you CAN add to an open position...you just have to wait for a re-buy signal from us. The re-buy signals usually come every 1-2 months, but it's really up to the market.

For example, if I was already in SSO and I just got another re-buy signal, I would take however much I've added to my account (say $10,000) and use 30% of that ($3,000) to buy more SSO and 20% ($2,000) to buy more LEAP options. Note how I'm only using the amount added to calculate how much to re-buy.

If I was NOT in SSO, then I would buy ($110,000 * 0.30) = $30,000 worth of SSO and ($110,000 * 0.20) = $20,000 worth of LEAP options using the above example.

The verbage I'm using might be a bit tricky at first, but go through it a couple times to digest how things work.

Note that the example above is just that...an example. It's up to you on how to configure your portfolio, but I believe there's a wealth of information on this web site to give you a great guide. You're already several steps ahead of the average trader. If you're new to trading, you might want to simply trade the Smart Money signals only (you'll make less mistakes that way...and the gains can still be HUGE).

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