The Underrated Trading Skill No One Talks About

Good morning, traders…

A question I get all the time: “Ben, how many positions should I have open?”

Wrong question.

The better question? “What % of my account should be deployed right now?”

Having 5 positions when each one is 20% of your account is wildly different from having 5 positions when each one is 5% of your account.

Position count doesn’t matter anywhere near as much as cash allocation does…

Image courtesy of the Corporate Finance Institute

The right amount of cash to have changes based on what the market is giving you.

Strong trending market with quality setups appearing regularly? You can afford higher exposure.

Choppy, volatile market where setups keep failing? Cash becomes your best friend.

Cash management is one of the most underrated skills in portfolio management. It’s not sexy. It won’t get you likes on social media.

But it’s how you survive downtrends and thrive in uptrends.

Let Me Show You How Much Cash You Should Actually Hold In Your Trading Account…

Cash Is A Position

Cash is a strategic position.

It’s optionality. It’s the ability to act when opportunities actually present themselves instead of being forced to sit on your hands because you’re already overextended.

When the market is trending up and setups are plentiful, having cash on the sidelines might feel like a missed opportunity.

But when the market is choppy, volatile, or trending down? Cash protects you from taking trades you shouldn’t take just because you feel like you need to be doing something.

The Baseline: 20% Cash

In normal market conditions — when the trend is intact, volatility is manageable, and quality setups are appearing regularly — I keep around 20% cash.

That’s a 4-to-1 ratio. For every $4 in positions, I hold $1 in cash.

20% gives me enough exposure to participate in the market while keeping dry powder available if something exceptional happens.

If a stock I’ve been watching finally pulls back to my desired entry, I have dry powder to deploy.

If a position goes against me and I need to cut it, I’m not scrambling to free up cash.

20% is the breathing room that keeps me comfortable, nimble, and prepared.

The Exception: 80% Cash

When market conditions deteriorate — choppy price action, failed breakouts, elevated volatility, downtrends — my cash allocation goes up dramatically.

Sometimes as high as 80% cash. That’s a 1-to-4 ratio. For every $1 in positions, I’ll hold $4 in cash.

That might sound extreme. But when the market sucks, most setups fail.

Stop losses get hit. Drawdowns pile up. The best move is to stop trading until conditions improve.

Holding 80% cash during a bad market is a sign of discipline. It means you’re refusing to lose money on low-probability trades. That’s a virtue.

5 Ways to Know When To Adjust

How do you know when to shift your cash allocation?

I look at a few things:

Market trend — Is the broader market trending up, down, or sideways? Uptrends favor higher exposure. Downtrends and chop favor higher cash.

Internals — Put to Call Ratio, manufacturing numbers, consumer sentiment figures, and inflation readings should inform your cash position.

Win rate on recent trades — If my last 10 trades have 7 winners, the market is giving me setups that work. If my last 10 trades have 3 winners, the market is telling me to step back.

VIX levels — There’s a reason I look at the VIX every day. When the VIX is below 16, conditions are generally calm. Setups tend to follow through. When the VIX spikes above 25 or 30, volatility makes it harder to manage risk, and I reduce exposure.

Setup quality — Are quality setups appearing regularly? Or am I having to stretch my criteria to find something to trade? If I’m stretching, I’m overtrading, and that’s a signal to raise cash.

The Psychology of Cash

The hardest part of holding cash is the psychological discomfort.

You see other traders posting wins and wonder if you should be in the market too. You start questioning whether you’re being too cautious.

But that’s nothing more than FOMO rearing its ugly head.

The money you don’t lose is just as valuable as the money you make.

Every dollar you protect during a bad market is a dollar you can deploy when conditions improve.

Every trade you don’t take when setups are low-quality is a trade that doesn’t drain your capital or mess with your confidence.

Portfolio allocation is dynamic. It changes with market conditions. And the traders who understand this survive the downturns and capitalize on the uptrends.

Start with 20% cash as your baseline in normal conditions. Scale up to 80% cash when the market is choppy, volatile, or trending down.

Cash is a position. Sometimes it’s the best one you can hold.

And speaking of cash…

The G.O.A.T., Tim Sykes, is $24,000 away from $8 million in trading profits…*