Designing a trading portfolio with only 50,000 USD involves taking on very high risk. While with 500,000 USD a couple of negative streaks may be manageable, with 50,000 USD that same downturn could force you out of trading.
To create the portfolio, we will build it exclusively using Liderbot systems, as having first-hand knowledge of the strategies allows us to fully optimize the 50,000-euro capital. In any case, we will also create portfolios with larger capital amounts and include systems from other developers for those who may find them useful.
1. INVESTOR PROFILE
This portfolio may suit a highly risk-tolerant investor, especially if 23,000 USD is just 2.3% of your total investable capital. However, if that amount represents a significant percentage of your net worth, it is advisable to avoid this strategy.
2. WHY DIVERSIFY WITH AUTOMATED TRADING SYSTEMS AS YOU WOULD IN OTHER TYPES OF INVESTMENTS
Diversification is a fundamental pillar of any investment strategy. Just as you wouldn’t concentrate all your capital in a single stock, sector, or mutual fund, you also shouldn’t rely on only one automated trading system. Below are the reasons why diversifying with automated systems is similar to diversifying in other asset classes:
- Reduction of Specific Risk
- Each automated system is based on different rules, indicators, and markets.
- Placing all your money in one system makes you vulnerable to drastic market changes or the disappearance of the inefficiency that system exploits.
- By using multiple systems, the losses in one can be offset by gains in another.
- Exposure to Different Markets and Assets
- Just as you diversify in stocks or bonds, here you can trade different indices: Nasdaq (higher volatility and opportunities), S&P 500 (moderate volatility), Mini DAX, Mini Russell, etc.
- If one index stalls or goes through an adverse phase, another could better capitalize on existing trends or volatility at that time.
3. SELECTED SYSTEMS
Several systems are proposed, each with its own logic and approximate capital requirements:
- Sound of Freedom (Nasdaq)
- Exploits an inefficiency detected in the Nasdaq.
- The core system of the portfolio: if it performs well, it usually offsets losses in other systems.
- Required capital: ~8,300 USD
- Mini SP ES JK (S&P 500)
- Required capital: ~6,000 USD
- LA PISCINE (S&P 500)
- Required capital: ~4,400 USD
- BLADE RUNNER (S&P 500)
- Required capital: ~4,400 USD
- MINI DAX FREITAS (DAX)
- Required capital: ~1,800 USD
- RUSSELL MINI PW (Mini Russell)
- Required capital: ~2,200 USD
Approximate total required capital: ~27,100 USD
With 50,000 USD in total, you would have around 22,900 USD left to cover drawdowns and any potential increases in broker margin requirements.
4. STRENGTHS AND DRAWBACKS
Strengths
- Solid exposure to indices with greater potential (Nasdaq, S&P 500).
- Real diversification in multiple trading logics, preventing concentration of all risk in a single system or market.
- Sound of Freedom can offset losses in other systems as long as it remains effective.
Drawbacks
- High sensitivity to drawdowns: With 50,000 USD, a 22,900 USD downturn could wipe out your trading.
- Dependence on Sound of Freedom: As the portfolio’s core system, if it fails, the negative impact will be larger.
- Inefficiencies can expire: What works in the market today may stop working over time, requiring updates or strategy changes.
PERFORMANCE IN 2024
A Monte Carlo simulation indicates there is a 5% probability of exceeding a maximum drawdown of 48,409 USD over the next five years. Even so, having a diversified portfolio such as this is often safer than running a single system continuously, as the risk is more evenly distributed.
However, keep in mind that if you suffer a 23,000 USD drawdown early on, you may lack the margin to keep one of the systems running. This would force it to shut down and thus push you out of the strategy prematurely.
6. FINAL CONSIDERATION
If 23,000 USD equals 2.3% of your total investable capital, the portfolio could fit your risk profile. Otherwise, it’s best not to undertake this approach. Every investment carries risk, and trading systems are no exception: each investor must crunch the numbers and decide whether such an aggressive approach suits them.
On the other hand, if you choose to trade fewer systems, you will lower the required capital and exposure, though at the cost of some of the diversification benefits this setup provides. Ultimately, real-world results over time will show whether this strategy was profitable or could have been improved.
Disclaimer
The information provided in this material is for educational and informational purposes only. It does not constitute financial, investment, or legal advice. Trading in the financial markets involves substantial risk of loss and may result in losses exceeding your initial investment. The author of this content does not guarantee the accuracy or completeness of the data and shall not be held liable for any losses you may incur. Always seek the advice of a qualified professional before making any investment or trading decisions.