Keep those eggs out of the same basket
There are two ways to look at asset allocation (the way you divide your investments) and diversification as it relates to the forex:
Investing in multiple markets
The first way to diversify is to make sure you are not exclusively invested in a single asset class. For example, being solely invested in the forex, or stocks, or bonds leaves you exposed to systemic risk. Systemic risk is the type of risk that you can’t get rid of. Systemic risk covers anything from your account being frozen through insolvency to catastrophic volatility in a particular market because of an unexpected unknown.
Diversify your forex positions and pairs
The second way to take advantage of diversification is by creating variety in the way that you trade or invest within an asset class. For example, if you are managing your forex positions one trade at a time, or with only a single strategy, you are exposing yourself to focused risks without any way to offset them. This creates volatility within your account, and account volatility can mess with your trading mentality and lead to losses.
Start mixing it up
Here are a few simple ways to start building a diversification strategy. You will find some example allocation ideas in this lesson and a little more detail in the video.
Forex Essentials Course - 21 lessons:
1. What is the forex2. Supply and Demand
3. How Trading Works - Interbank and the Forex
4. Choosing a Dealer
5. Forex Pairs - Characteristics and Qualities
6. Earning Interest in the Forex
7. Margin and Leverage
8. Short Term vs. Long Term Trading
9. Forex Futures vs. Spot Forex Accounts
10. Fundamental Analysis in the Forex
11. The Calendar and Economic News
12. Introduction to Charting and Technical Analysis
13. Support and Resistance
14. Fibonacci Analysis
15. Price Patterns
16. Continuation Patterns
17. Reversal Patterns
18. Technical Indicators
19. Portfolio management – Diversification
20. Portfolio Management - Position Sizing and Stop Losses
21. Introduction for Forex Options
