Core Position Trading

How to make $1,000,000

Want to know how to make a million dollars? It’s easy: invest $100 million in US Treasury notes then wait 4 months.

I kid, I kid.

For too many people making a million dollars seems insurmountable. The reality is that anyone who can scrape together $1,000 can eventually get there with 142 trades using core position trading. And only three things have to be true for those 142 trades:

  • Markets go up and down in the short term.
  • Markets will generally increase over time thanks to inflation and economic growth.
  • Markets can’t go to zero.

Starting with $1,000 and getting to $1 million dollars is simple math: you just need to compound 142 trades that return 5 percent to get there.

The Rules

Signalee exists to show you how to take a $1,000 account and get it to $1 million.

  • I’ll be adding $100 to the account every two weeks to mimic someone saving a little bit of money from every paycheck.
  • I’ll assume a $5 commission on each trade.
  • The portfolio will start out owning a single ETF to minimize trade commission costs. As the account grows it will be expanded to hold 10 ETFs.

Core Position Trading

Markets are uncertain. It’s impossible to know whether they’ll go up or down in any given month or year. Core position trading takes advantage of that uncertainty by trading the ups and downs. There’s a lot of different flavors of core position trading, but Signalee’s particular approach is as follows:

  • Start by buying 100 shares. If price goes up 10 percent from entry, sell all 100 shares. We just made a 5 percent return (50% of account x 10% return).
  • If price drops 20 percent from the initial entry point, buy another 50 shares. If price returns to the original entry then we sell them for a 5 percent profit (25% of account x 20% return).
  • If price drops another 20 percent from the initial entry point, for a 40 percent decline, then we buy another 50 shares. At this point we own 200 shares and our current mark-to-market loss is ~30 percent. Once price rebounds 20 percent, sell the 50 shares.
  • Repeat steps 2 and 3 every time price bounces between the buy and sell points.

If price drops 40 percent from entry, we’re happy. Price volatility is our friend and if we’re making reasonable ETF selections, then buying an ETF at 40 percent off is typically a great deal. Ask yourself: what ETF would you buy if you could get it 40 percent off right now?

Core position trading allows you to profit even in the face of market declines. More importantly, it changes your mindset and causes you to look forward to market declines because you now have a systemic approach and dry powder ready and waiting to invest.

Core Position Trading – Grind it out

Besides the behavioral improvements from being able to profit from bear markets, core position trading also removes FOMO. Instead of trying to chase the hot new investment trend for the big score, which often ends in a most spectacular fashion, someone who uses core position trading grinds it out. They live in 5 percent increments. Every 5 percent profit gets them closer to the 142 trades needed to take an account from $1,000 to $1 million. Increasing your account 100,000 percent seems impossible. But increasing your account 5 percent 142 times is within reach of anyone.