When to Trade A Lot and Not Trade At All

Regular HX Trader readers know that one of our crucial investing rules is that you should either trade a lot or not.

This concept aligns with one of our other maxims: "Plan the trade, trade the plan."

The core of both ideas is that if you spend time researching and developing a well-thought-out approach to your investments, you should stick to it.

The worst thing for an investor to do is to formulate a long-term, buy-and-hold plan to "not trade at all" and then quickly shift to "risk management" when things go wrong. This is actually the most common mistake that both amateur and professional investors make.

As we've been watching the markets the past couple of years, and especially as we have been involved in the volatile crypto markets, we have also begun thinking about when and how to deploy these two strategies. TRADING and INVESTING.

Our core strategy has always been to allocate a certain percentage of your portfolio to each type of strategy. That split may be 50/50, but it may be 80/20 for others. Regardless, you should always define distinct pools – one where you take a long-term, buy-and-hold strategy to make big money and another where you trade aggressively.

While this is our default view, there are times for individual stocks (or assets) and the markets where this might change.

For instance, we've often said that if you make 100%, 200%, or 500% on a stock (or crypto) quickly (as in a few months), you should likely book some profits.

We like the idea of selling 60% of your holding because it means you book a profit on your original investment and still have an almost equal size (to your original) position to let ride.

Conversely, if you have a stock or asset that goes up 100% over a year – that might be something you want to add to instead of taking profits. Remember that a stock has to go up 100%, 200%, and 500% before it goes up 1,000%... and we all want the 1,000% winners!

The one caveat is when actual news may be driving a stock move. However, we think that these are generally good rules when determining whether to take profits (or not).

There is also something to be said for the market environment.

In a fast-moving market where many stocks are making these kinds of moves, this profit-taking is not only sound trading but also crucial to risk management.

You might want to take some of your "trade not at all" stocks and trade them a little in that scenario.

This means that if you own a stock that you think still has the potential to go up 300% across several years but it makes that move in six weeks, it might be a good idea to take some chips off the table. You can always add to the position on any pullbacks.

However, for the most part, for the "not trade at all" portion of your portfolio, we recommend the "stick it in a box" strategy.

Allocate capital to that portion of the portfolio, consistently add capital to it, and potentially add new names, but do not look at the returns.

This doesn't mean you should avoid basic portfolio monitoring because things can change, but turning off your access to the portfolio's returns might actually be one of the single most powerful tools in portfolio management.

Do you have both a TRADING and INVESTING portfolio? What percentage of your portfolio do you devote to each? Let us know in the comment section online (scroll to the bottom of the post).

I also want to add one word about these strategies and investing in cryptocurrencies...

Right now, the crypto market is picking up again. We are not sure it will get back to the craziness of 2021, but it is working in that direction…

Here, my recommendation—beyond allocating to the largest cryptocurrencies (Bitcoin and Ethereum)—is to always trade a lot!

That doesn't mean you shouldn't be constantly involved in a particular cryptocurrency. Still, your best bet is to be aggressive here.

Remember, the most essential part of trading is taking big profits when you have them. That allows you to buy when needed and take advantage of the best opportunities.