Money management in investment and the real return of a portfolio

1. First, the trend in the market is up. So, here I am 100% in SSO. My own real money portfolio does not use SSO. I use SPY and I went in today and brought up my SPY holding to 10% of total portfolio with a stop at $88.20. The rest of the portfolio is made up of permanent holdings of all kinds of dividend yielding large stocks, where I have been adding steadily. I always keep 50% of my total portfolio in SP500 mutual funds or cash when the market is below 200-day MA. I play with the other 50% in stocks. Right now the SP500 mutual fund part is totally in cash ever since we went below 200 day MA in Nov 2007. I didn't go short, which is a mistake in the hindsight. But hindsight is always 20/20. I was afraid of getting whipsawed, so I stayed out. I thought of getting back in when we crossed 50day MA but the economic condition really looks bad to me. I will wait till we cross 200-day MA before risking my solid base part of the portfolio.
2. Second thing I want to talk about is how net return of people's portfolio is way less than simple market return. Here is why: I have found that if someone has $X in savings, then he does not have all of X in the market. People usually play with a fraction of r*X and the rest (1-r)*X languishes in a bank account. Suppose they get a return y from the market and z from their bank account, then their return should be: y*r*X + z*(1-r)*X. I will bet that their return is less than SP500.
3. Third - Another problem that I find with people's fake portfolios is that they are nothing like their real money portfolio. Unless you put real money your portfolio does not count.
4. Fourth - Say, you have X dollars that you do not need for a long time (at least 5 years). Then I consider that investable property. Now, the cardinal rule of investing is: Do not lose more than 2% of the total portfolio (ie X) on any trade. How do you make sure of that? Suppose you have $100,000 to invest. Lets work out the example with SPY, which is around $90 right now with a supprt around $88. Now, 2% of 100000 is $2000. Therefore, if you were to put a stop loss order at 88, you stand to lose $2/sh. Therefore, you cannot have more than 1000 shares of SPY. I work with even more conservative scenario and don't place bets that have more than 1% loss in any trade. But, I will go up to 2% if the market is strongly trending.
5. A fifth aspect of trading is trying too many stocks. I have found that one or two is enough for trading and I will treat the rest as non-trading portfolio. I cannot keep track of more than 10 stocks. My trading portfolio has just SPY 500 which I sometimes short also. I haven't used SH since it has less liquidity.

6. Sixth item I want to talk about is: Recently I have started to learn spot currency market which trades 24 hours. They give you a lot of leverage, but you don't have to use the leverage and only trade EUR/USD or USD/CAD stable pairs. Say, you open an account of $10,000 then if you just trade 1 mini-lot you wouldn't be using any leverage. Clearly you should never go beyond 1:2 leverage, which will allow you to trade 2 mini lots. People trading with 1:10 or higher leverage easily LOSE all their money. Unless one has $100,000 or more in an account, they shouldn't even think of opening a standard account that lets you trade in regular lot of size $100,000. That is what I have been studying. The 24 hour liquid market is appealing to me. But I have not decided to give it a try yet. I am also afraid of really shady brokers. I have been looking at some, dbFX and fxcm are two that I have been looking at closely. I have a practice account with dbFX. Also a website www.babypips.com is a great place to learn currency trading or any kind of trading. I found their presentation educational and entertaining.