Well, the answer is obvious, as even our ancient ancestors figured out that putting all your eggs in one basket is a bad idea.You risk ending up with no eggs at all! Hence the saying…
Same thing with managing your money. Diversification is not a luxury but rather a necessity.
Usually diversification is a term applicable to portfolios. 30% cash, 30% stocks, 40% bonds, that’s what books on economics teach us.
But how does one diversify his trading?
Here are the main paths:
1-Using multiple trading strategies 2-Trading Multiple Markets 3-Having a second opinion.(have someone else verify your trades) 4-Having part of your money managed by someone else.
The first two are about how and what to do with your own trading. The latter two are the so called hedges against yourself.
But anyone who’s been on the markets for the smallest period of time knows that, though great on paper, implementing different strategy trading, while monitoring several asset classes is humanly impossible!
It takes years to master ONE strategy and trading more than 10-15 instruments at once is impractical, and that is within one asset class.
An attempt to trade stocks, currencies and bonds at the same time is DOOMED to fail as these instruments have a wildly different behavior and require a certain approach to trading, even within one trading strategy, while having technical and other differences that taken together will have the best traders annihilate their accounts in weeks.
Thats why I cringe when I see people offering forex, stocks, commodities and IPO signals/management/education. Whatever it is, a poor quality is guaranteed!
So, what to do If you still want to diversify?
Well, there is a way to do just that, while combining the benefits of all 4 mentioned ways of diversifying ones trading: Account management and signal services. Aren’t they all fraud? How to pick wisely and what to do with them….? Read in my next article!