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The Many Faces of Automated Forex Trading Software

Forums / General discussion / The Many Faces of Automated Forex Trading Software


2019-11-09 07:33

Diversification as defined by the Forex Monarch Review American Heritage dictionary is: "To distribute (investments) among different companies or securities in order to limit losses in the event of a fall in a particular market or industry". The primary goal of diversification is to "capitalize on returns" through investments in different areas so prevent a total wipe of your positions should the market turn against you. Nearly all investment specialists have the same opinion that, diversification is absolutely necessary to avoid risks for long-term investments.

Just imagine that you have an account in Forex, and you only trade the EUR/USD, can you diversify your position? The answer is YES. A very resounding yes at that as well! Even if you trade just one currency pair you still should diversify your holdings. In a while we will go through just how to do that. Let us first explore the advantages and disadvantages of diversification in Forex. One of the advantages of having a diverse holding would create more stability in your account. Just image if one trade turns against you (which is highly likely) you have at least some other trades that would win. Thus your final profit and loss statements for a day will show a profit. If you had just one trade most likely you would be facing with a loss for the day.

A disadvantage of diversification is that there is the possibility that you get carried away and over diversify your positions. Focus is needed to maintain profitability in your account, an over diversification will dilute that focus which makes it difficult to grow your account. To illustrate the above 2 examples let's work through some figures: For instance you fund your account with $10,000 and each position size you take is normally 5% of your total account. How should you diversify your account? There are three ways of diversifying and I recommend that you do at least two. First method is that you break your 5% into 1% each and trade with 1% per trade instead of a huge 5% in a single trade.

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