Portfolio Diversification in Forex

You have heard the saying “don’t put all your eggs in one basket”…well this idea is no different if you wish to remain safe and prosper in the Forex market.

It kills me how some intelligent traders ignore this one golden rule of portfolio diversification and blame everything but themselves when the brick hits the glass.

Having a well-diversified portfolio is essential in Forex especially if you are thinking of staying in the game for the long term. A lot of big companies and brokers made big mistakes in this financial turmoil we all experienced in 2008. The crucial mistake was they failed to properly diversifying their portfolio.

You my dear trader should not and will not fall in the same trap, as this problem can be solved if those two related factors are taken into consideration:

• Currency values

and…

• Strategies

Why?

The reason is that news and social policies, which follow each other on a daily basis, may have an influence on the historical relations of the currency pair in question. In time, it will surely be more reliable. The second case, however, is to choose alternative strategies to achieve the same goal. A portfolio can be composed of many strategies in contemporary breakout, trending, reversal, exit strategies etc…

The importance of diversifying your portfolio can be seen when there is a strong currency crisis. If you have your strategies on a single currency pair and for whatever reason the market moves in a manner other than what you did forecast, rest assured that may will lose a lot of money. With a diversified portfolio however, you may cover that loss with gains from other pairs of currencies and manage to keep your shirt as well :) .

There is a saying that you should stick on a wall somewhere… “Cut your losses and let your winners ride”…I swear by this rule on every trade.

To success.

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