This week we take a look into how you can diversify in forex. However as good as diversification sounds there is also some drawdbacks to it. So how can we do it?
In theory the more diversified you are the less you are risking overall and your drawdowns should be lower in terms of percentage or duration. There is a few variables you can use to diversify your porfolio and I believe you should be doing so to certain extents
These are the 3 factors you would want varying in your trading. Time diversification is for example trading a system on the 1hr or the Daily time frame. It may be the same strategy but just different timeframe.
Pairs and portfolio is also quite straight forward. You can have multiple pairs trading 1 strategy, or multiple strategies on 1 pair. ORRR you can combine and have multiple on both which ‘should’ give you better results.
The drawdowns of diversification is that it may actually increase your risk and exposure to the market so it can either force you into a more conservative position size (can reduce ROI) or actually extend your drawdowns rather than minimising them.
Here is a video explanation of this with a few better examples and a look into my portfolio that I want to build.
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