@Tradelta hey Stefano.
The most basic asset allocation / moderns portfolio theory would have you account for two factors: risk and return.
Risk will impact your Fantasy FM results in the drawdown and volatility, and returns on the performance.
So, at a very basic level, you first need to define the level of risk that you are comfortable with; you can estimate this with the historic volatility/standard deviation of the weekly or monthly return of the assets that you’re intersted in. You need to do a regression analysis against the returns of the index on which a stock is listed, or against a benchmark for such asset. The beta factor calculated will tell you how volatile an asset is, below 1.0 is low risk, and the further it is above 1.0, the riskier it is. Negative betas will be for assets that are negatively correlated between each other, like gold and stocks. Which in theory would “cancel” each other out.
This level of risk tolerance will also tell you when to close a position when it’s not going your way.
Second, build portfolio based on your expected returns of the assets. Here is obviousky the hard part, go for high growth / high risk, mid growth / mid risk, low growth / low risk???.. Also, you have to kind of do some “divination” about which assets are going to actually present growth in the future… there are two main strategies that are followed here, growth stocks vs. value stocks:
You will have to do some research to have some 20 or 30 different assets on which to invest, and see from the historic data (along with your future expectations) which currently present you with and attractive entry position. The rest that may be good investments, but don’t currently offer a good entry price, you keep on your watch to invest at some point in the future (the cash reserve you mentioned).
In relation to cryptos, this can be considered highly volatile. Particularly Bitcoin, I’m not sure it has that much growth potential in relation to the constant swings on its price.
In relation to cash, yes, i would say maybe keep 5% or 10% in a real life situation as a reserve. But for Fantasy, I’m going all in, as there is no waiting period from closing a position, getting back the cash and opening up another position.
In very broad terms, maybe allocate 10%-15% to high risk, 20%-30% mid risk, and the rest to low risk.
If you wish to go deeper into the technical aspects of portfolio construction check out the academic papers of Harry Merkowitz, Keneth French, Eugene Fama.
I’m also open for further questions guys