Lower the Risk of Trading by Diversifying (Basics No.3)

Trading Forex market can be extremely risky venture, and many that loose all their deposits can witness to that.  Yet there are ways that the risks can be lowered to manageable levels and keep them under control while at the same time exploiting full benefits of market earning potentials.   So, look at some of these risk lowering means:

1)    Diversify, diversify and diversify. 

First do it by choosing different brokers.  If one goes down, probably another one won’t.  If spreads are suddenly widened, maybe one will have better ones than the other. 

Secondly, you have an option to employ as many trading styles and systems as you see fit, especially if the strategies are pre programmed.  You only limit the amount of trading systems you use by your own knowledge and experiences in Forex, and by how much you want to be diversified.  There, you can work in Forex as much as you want to.

Lastly, trade different currency pairs, especially if they are unrelated to each other like EUR/USD or JPY/GBP.  Your system may work on one, but not the other. 

However you diversify, you have to make sure you do not over complicate.  Simple things can work the best, and if the result is that you can not concentrate or execute well, then the benefits of diversification are probably non existent.

2)    Trade the most liquid instruments.  This is to address the problem you may have when trading different currency pairs.  If your spread is high, so is your risk.  It is as simple as that.

3)    Don’t day trade the market right before or after economical reports.  Schedule of major and potential market moving releases can be found in many places including in my regular weekly update post.  Ten minutes before the announcement when market suddenly quiets down may offer few opportunities.  And twenty minutes after the announcement may be so volatile that your stop loss will be taken out regardless of where market may end up going afterwards.

4)    Use a proper money management rules.  You probably already knew this by reading my previous post. But anyway, by limiting your maximum loss to less than 5% of your equity, your risk will be tamed from a blood-tasted shark to a little kitten size ferocity.  Then you may decide to play with the market, rather than fear for your bare life. Regardless of what anyone tells you, both of those emotions are felt as reality in the marketplace every single day by thousands of other traders.

GoGo to the next Basics No.4 or back to Basics No.2