## Why Rebalancing Is Necessary
Portfolio allocations drift over time. A strategy that produced exceptional results will have grown its bankroll allocation beyond its initial weight. A strategy with a bad period will have shrunk below its target. Without rebalancing, the portfolio gradually concentrates in whichever strategies have been recently profitable — not necessarily the best forward-looking allocation.
## The Trigger-Based Approach
Rebalance when an allocation drifts beyond a defined threshold:
- Target allocation: 25%. Rebalance bands: ±10%. Rebalance when actual allocation exceeds 35% or drops below 15%.
This avoids constant rebalancing (transaction costs in time and margin) while preventing excessive drift.
## The Calendar-Based Approach
Rebalance quarterly regardless of drift. This is simpler and less reactive — calendar-based rebalancing prevents the temptation to rebalance based on short-term performance (which is usually variance, not signal).
## The Performance-Based Adjustment
Quarterly rebalancing incorporates a performance review:
- Strategies with 3-quarter positive CLV: maintain or increase allocation
- Strategies with 1-quarter negative CLV: maintain with monitoring
- Strategies with 2+ consecutive quarters of negative CLV: reduce allocation by 50%
- Strategies with 3+ consecutive quarters of negative CLV: consider removal
This performance adjustment distinguishes between variance (short-term negative) and genuine edge erosion (persistent negative).
## The New Strategy Onboarding Protocol
When adding a new strategy to the portfolio:
1. Paper trade for 100 bets to confirm edge shows in live market
2. Allocate 10% of portfolio in small-stake live testing (next 100 bets)
3. If CLV remains positive: promote to full entry allocation (15–20%)
4. If CLV is negative: remove from portfolio, return allocation to buffer
This prevents under-tested strategies from receiving significant capital.
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