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Diversify, the way of success

Diversify, diversify in trading, learn how to trade

Diversify, diversify in trading, learn how to tradeWhy having more weapons to fight the markets and to use just one of them? Why give up the possibility to limit risk by investing in a single asset?

Proverbs have always been a source of wisdom, one of the greatest Americans proverbs I love most says: "don't put all your eggs in one basket". The reason is easy to understand, if something is going to happen in that basket you would lose all your eggs. Not intended, then your savings and resources towards a single goal or probability.

Paraphrasing that proverb, I find it natural to say: don't put all your money into one asset. Do not invest your capital in only one asset that might be Stocks, Forex, Commodities or other, but you invest them in more markets, for the reason, I have written above.

In this regard, I am reminded of the scandal Wolkswagen. You think about who the morning that came out of the news was bullish in on shares. You think, now, who that morning was upward, for example, on an EFT of car shares. The first trader has seen his capital losing over 20% in an amen, the second one was at a loss, but nothing to worry about (just above 2%).

By investing in multiple markets you can greatly reduce the risk, in certain cases even of annulling it. Always with regard to the example above, who had entered long on Wolkswagen, and at the same time, had sold a call option (with a higher strike) on the share, with a small amount he was covered from a possible collapse.

Let's change the topic for a moment, think now of the soccer. Excluded for rare exceptions, the team that wins the Championship is also the one who has the best defence for the number of goals conceded. This is because, thanks to a good playing strategy, the team won't just be consist of 3 or 4 good defensive players (depending the game plan) but also from a midfield which makes filter and strikers which, if necessary, drop back to defend; and all together they will allow for the team to reduce the risk of conceding a goal.

The same thing happens in trading. Not only we must always place the stop loss (defenders) but you must have the same aid of the team above. Help that is available to us from other markets (midfielders and strikers), differs from the one in which we have invested our savings.

Trading is either our primary activity or a way to supplement our income, diversification is the best way to get a steady income month by month. Without forgetting another important aspect: a very low risk also means less stress and worry going to improve the quality of life.

 

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