How to Diversify Your Trading Strategy

When you read the article, Staying Up to Date with Market Conditions, you’ll learn that the market is constantly changing, sometimes for the good and other times for the bad. Since we can never fully predict the market, it’s important to have a well-diversified portfolio. By doing this, you’re not putting all of your eggs in one basket, but instead minimizing your losses. After all, even the best traders will experience losses – it’s all part of the trading process.

That’s why trading professionals recommend making a strategy before you even need one. This is because a great defense, as opposed to reacting to the market afterwards, will give you a better chance of coming out successful. So, how should you diversify your strategy?

How to Diversify Your Strategy

In general, to diversify your strategy, you should avoid trading in the same direction on a number of currency pairs that are correlated. This will help you achieve a more balanced investment portfolio. Now we should be asking ourselves, how do we know if a currency pair is correlated?
To start, there are online tools that can show you the correlation matrix, which allows you to see the strength of correlation between currency pairs. In addition, here are some general rules of thumb to consider:
  • Avoid similar positions involving currencies from the same regions.
  • Check correlation in multiple time frames.
  • Hold positions over different time frames.
  • Avoid trading in the same direction on strongly-correlated pairs.

As you can see, the goal is to remove similarities between different pairs within a portfolio. As a result, if one of the currency pairs is unsuccessful, it doesn’t necessarily mean that they all are.

How to Learn More About Currency Pairs

Remember that diversifying your strategy doesn’t mean that you’ll never experience loss. Instead, it means that it should reduce the risk of losing everything at once. Basically, when you have a loss, you’ll make up with it by the success of your other currency pairs.
One of the ways to have a successful portfolio is to know more about currency pairs. In addition to doing your research, you can also get help from trading professionals. With Expert Advisors, as well as live trading rooms that are hosted by professionals, you’ll learn everything you need to know about diversifying your strategy.

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