NEW TRADER GUIDE – PART THREE – STRATEGY AND PORTFOLIO MANAGEMENT

Welcome to the more advanced Trading Guides.

In the two part New Trader Guide, we covered some basics to help new traders get used to FI and avoid some of the common traps new traders can fall into. 

In these more advanced guides, I am going to discuss more detailed topics. All the guides can be accessed by the pictures above, though I recommend reading them in order.

Strategy and Portfolio Management

In this guide I’ll discuss the overall strategy and approach to trading, with discussion of aggressive, balanced and passive styles.

And, portfolio management: how many players should we have? How many shares should we buy in each?

People often assume big profits are all about which players you buy and when

That’s important. But the way you manage your portfolio has a HUGE impact on your results come the end of a season.

Two traders could buy exactly the same players at the same time but get very different results depending on how they carved up their portfolio. 

Plenty of people share their portfolios with me, often underwhelmed by the performance and looking for advice. Sometimes they are picking good players but seeing mediocre results.

The most common cause of this under performance is shaky portfolio management or insufficient aggression, so I’m going to cover both of those here.

I am a fairly aggressive trader, and I’ll start with a note on my own style. This doesn’t fit with everyone, and I’ll go onto discuss other styles in the article too.

My "Tight Aggressive" trading style

As well as trading in traditional markets and being an avid Fantasy Football player, I also spent quite a lot of time prior to life on the Football Index playing online poker.

I was never a big sports punter. Poker suits me much more because you are more in control of the outcome. Yes, luck plays a part, but over thousands of hands, the luck balances out and good players will tend to get what they deserve.

The same is true in trading. Any mug can get a big win and flash it on Twitter. But are you winning time after time and not taking many steps backwards along the way? That’s what brings consistently strong returns over a season.

Most competent online poker players play some variant of a “tight aggressive” strategy (unless you get to really advanced levels where they get more unpredictable, but that doesn’t matter here). This mindset is something I carried into my trading and have refined it over the years. 

And I continue to adapt it and try to improve because the tactics that will work change season to season and will keep doing so. FI will get harder over time in general as it gets more mature.

So, what is tight aggressive play on the Football Index?

Playing Tight

Tight players don’t bet often. You will see them only getting involved in around 20% of hands at the poker table, which means 4 out of 5 times, they aren’t playing at all. But when they do play, it is because they are statistically very likely to win. 

By contrast, a player who is playing 50-75% of hands is known as a “maniac”. They want to be involved in every hand and just want to “play” (This is quite similar to an FI trader who can’t stop themselves chasing rising players, panic selling, and generally trading for the sake of it). A good player will want to sit with them all day because cleaning them out is essentially just a matter of time. 

In Poker, a player will be able to calculate their statistical odds of winning just based on the two cards they are dealt. That’s relatively simple. 

On the Index, we need to be able to know when we are very likely to win and when we aren’t, too.

But we have a harder job because to assess our chances of winning we need to be capable of making good assessments of the current and potential performance/media strength of the player versus their price and be able to read the market and where it is headed. We’ll come onto that in other guides.

For now, all we need to know is that playing “tight” on FI to me means focusing on a relatively small number of high quality, high potential players that work with the trends that exist in the market but are at value prices. 

Don’t chase our own tail feeling like we have to react to whatever other people are doing (because they are often crazy). And don’t back the 50/50’s we aren’t sure on.

Be highly selective, and trade when the odds are stacked firmly in your favour, basically.

I never get involved with pumps (unless pumpers follow into players I have which is common) and I do not need to hold toxic overpriced and risky players that are being pumped on social media. It is a popular myth that this is where the best profits are. The myth is pushed by the people it suits – it’s not true.

Playing Aggressive

Let’s make a big assumption that we have been able to follow our “tight” play style effectively. 

We should have a solid list of target players who have strong current or potential dividend credentials, fit the trends coming up, and are at value prices.

I’m not pretending that’s easy, it’s not. These skills will need entire guides of their own, and even then, it requires skill and experience. But for now let’s assume we are at that point.

This ability to select the best players and read the trends in the market effectively is the foundation on which huge profits can be built in this trading style.

But even that isn’t enough on it’s own.

We also need some aggression to make the best profits. 

If we have confidence in our selections due to better research and judgement than most, we need to back them with enough money to get paid if they do well.

That means not spreading ourselves too thin. 

As mentioned above, when traders share their portfolio with me looking for advice, sometimes, they just make poor selections. Other times, they make generally good selections, but their lack of confidence means they fail to back them sufficiently.

If a trader wants a portfolio with hundreds of players to diversify and spread their risk, effectively just purchasing a market tracker, that’s fine. But it will always deliver mediocre results that generally depend on the market as a whole going up more than individual players succeeding. Any successes they have will be dragged back by the other players that underperform.

This is harsh but I think it’s true – too much diversification is for traders who don’t know what they are doing.

For example, in my New Trader Challenge I started at 18/19 season kick off with a £1,000 balance, blogging every decision along the way. By the season end I had a £3,208 balance, an increase of just over 220%. 

Typically, that portfolio had no more than 10-12 players at any one time. When I thought I had a gem like Joao Felix or Bruno Fernandes, I backed them big with up to 10% of the portfolio. The vast majority of selections made money, and I was able to manage the picks that didn’t go so well to avoid making any notable losses. 

Those results could have not have been achieved if I had broadened that portfolio to 30-50 players or more. I did better by focusing on my best picks and cutting the 50/50 selections out.

However, it is very important to remember that aggression without a solid platform of sound research and market analysis will get you into big trouble. 

Like that “maniac” poker player who is betting big and often even though he isn’t sure what his odds of winning are, we will lose money if we play aggressively if our player selection and market reading is not on point.

So what is the correct balance?

Find a balance between diversification and aggression that works for you, and alter it as time goes on.

Certainly, when starting out and finding your way on Football Index, diversification should be fairly wide.

As you get more confident with player selection and the market trends, you can consider slimming your portfolio down to focus on your better picks.

If you are an experienced trader who feels they know how to pick a good player but are dissatisified with your results it may be that you are not being aggressive enough. (Although, be wary of comparing yourself to others, don’t pay too much attention to what you see on social media, lots of reports of huge profits will be faked or at least gloss over their losses.)

Generally, the smaller your portfolio size is, the more volatile it will be. It can go up a lot more but also any losses will hurt more too. That is why aggressive play cannot be done successfully unless you have strong player selection and market reading skills.

Imagine for a moment the poker player trying to play aggressively if he didn’t know which cards were good or bad! It would be a catastrophy. On FI people do this all the time though, and whilst many people have been burned, many have also gotten away with it in the past. 

Football Index is still a forgiving place because it is young and the whole market is rising. But it will not always be this way and we do not want to get into these bad habits if we want to stay profitable in future.

So what is a good size for a portfolio? It depends and there is no one right answer, the right answer is what suits the traders skills/confidence/time commitment and appetite for risk.

Let’s take a look at how we might set up a portfolio in an aggressive, balanced or passive way.

Choose a staking strategy and stick to it

Most people in my experience seem to buy a set amount of shares in a player. They might have a level they like to hold when they buy in, be that 100, 500 or 1000 shares or more. 

There is nothing wrong with this per se. But it does tip you into spending more money on more high value players and going softly on cheap players that may rise (or go down!) much more in percentage terms. 

Buying a set number of shares in every player can be a safer method for that reason, since it will tend to concentrate the bulk of your funds in established, but more expensive, players.

We should be aware though that this can be a way of being quite passive without even realising it.

It can be another reason why traders can be disappointed with their results.

So, what’s an alternative?

I will generally buy players in a cash percentage of my portfolio value. 

So, instead of always buying 100 shares in a player, I might buy a % of my total portfolio value in a player. That means that each of my “bets” whether the player is premium or budget is roughly the same size. 

Compared to the more common approach of buying a set number of shares in each player, this will tend to spread money out more evenly across players in the portfolio rather than concentrating funds in expensive heavy hitters. 

That means that I will tend to put more money in value options this way, which can obviously lead to bigger rewards if you get it right, and bigger losses if you don’t. 

For example, if working with a £1,000 portfolio: 

Aggressive: £50 standard buy, £100 big buy, Approx 10-15 players. 

Balanced: £25 standard buy, £50 Big Buy, Approx, 20-30 players

Passive: £12.50 standard Buy, £25 Big Buy, Approx, 40-60 players

In the above, if taking an aggressive approach, I am normally spending 5% of my total portfolio value on a player. When I am very confident I have found a gem at a value price, I will double that and go in harder with 10%. Personally, I tend to double down like this quite a lot.

By thinking in percentage terms, rather than just numbers of shares, and by incorporating normal/big buys it is possible to better exploit value opportunities.

It is also possible to lose more money, particularly when buying big into a cheaper player that flops. That’s why this is not for everyone and more balanced / passive strategies can be the best thing for many people.

So, is an aggressive style the best?

No not necessarily. 

It is worth noting that there is no single mindset that I stick to all the time here. These are guidelines not hard rules.

I personally tend to move between aggressive/balanced depending on the time of year/market trends etc. When my confidence in the market and specific players goes up, my aggression goes up. And if the market is struggling a bit or I am more uncertain of quality targets (pre-season perhaps when teams have been shaken up) I may widen my portfolio out and diversify more.

I never use a passive, very diverse style. This approach can suit less active traders who don’t want to check FI every day. Or, it can suit those less confident in their player selection.

And, the bigger people’s portfolio the more naturally risk averse they tend to get. So, if working with a six figure portfolio (I don’t by the way, but maybe one day!) even I would sweat over putting down £10k on just one player no matter how confident. It would make me nervous so I just wouldn’t do it.

To some, £10k might not be a lot and they may be happy with that kind of risk. Equally, £1,000 or £100 is a lot of money to many people and we shouldn’t be putting too much on one player if it causes us stress. 

Aggression can bring big profits. But only from a foundation of strong research, knowledge, and market reading.

The foundation of good aggressive trading is strong player selection and market knowledge. Without that, wide diversification and a more passive approach is essential.

If you aren’t 100% confident with player selection or strategy, or even if you are but don’t really have the time to be reviewing detailed stats on every match (most people don’t!), you could join my members area. I spend something like 100-120 hours each month reviewing every match each game week (including internationals), transfers and the market and for £3 per week I share all of it to give members the information they need to trade with confidence.

The members area has an average satisfaction rating of 4.9 out of 5! So it must be doing something right. More details on that are here

The golden rule of all this is to find the right balance for you that spreads your risk enough that you are relatively comfortable. But also, be aware that if you want to match the best gains on offer, you can’t get too comfortable and you have to make tough decisions. 

An oversized flabby portfolio will lead to a very mixed bag of results.

The game plan of a new trader should be building up their player selection and market reading skills before they do anything else. 

You can start quite well diversified, and as you grow in confidence, dial up the aggression to try to get the rewards you want.

If you like what you have read here, check out the Members Area to see all of the fresh Scouting and Strategy content available weekly!

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