Who this is for — Traders who want to stop reasoning trade by trade and start thinking like a manager. Essential when you run multiple strategies or markets and need to balance growth with protection.
In plain terms — Allocating capital means deciding how many "risk dollars" to give each idea, not just how many nominal dollars to invest.
Prerequisites — Complete first silver-path (min.: position-sizing, trading-plan, drawdown, diversification). Foundation: bronze-path.
Practical allocation principles
Effective allocation starts from expected edge, volatility, and correlation between components. Strategies with similar returns but very different risk should not carry the same weight. A share of capital must stay flexible to adapt to regime changes. For this reason, allocation works alongside aggregate-risk and risk-parity.
Example — Portfolio with three strategies: trend, mean reversion, breakout. In a volatile phase, reduce the weight of the most unstable component and keep reserve for uncorrelated opportunities.
Periodic review and discipline
An allocation plan should be reviewed on a regular schedule, not only after losses. If a strategy deteriorates on key metrics, capital should be reallocated without hesitation. Reallocation protects against unintentional concentration and reduces stagnation risk. Managing idle-capital intentionally also avoids pressure to trade when conditions are poor.
Card
- What it is: strategic distribution of risk capital.
- How to use it: assign weights based on robustness and correlation.
- Typical mistake: overweighting the most recent strategy that performed well.
Gold path — Module: Portfolio and allocation. Part of gold-path.