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DIVERSIFICATION – YOUR SAFETY NET!
One of the biggest obstacles to trading, besides trading with too little cash, is to find yourself with large drawdowns, and nowhere to go if your bank balance drops substantially. Of course, if your trading balance is considerable, you have much more leeway. So trading one system at a time may appeal to you, but the odds are that over time, you may first reach your drawdown limit before you reach your profit target limit.
Compare this approach to one where numerous trading systems are employed simultaneously. In this situation, losses can be offset by winning trades, and if the systems you are utilizing have any merit to them, the longer you trade, the more money you will make, as your winning balances will be more than your losing balances – over time. No one system approach will be successful over time, as markets are continuously changing. The psychology of markets and those trading them are in a continual state of flux. Trading with the trend is successful for just so long. Then the market changes and one must lengthen one’s time factor – and increase one’s stop factor, or one must look for reversal situations and trade against the trend. This will last only so long before your losing trend trading system again reasserts itself. In the meantime, the drawdown may be enough to sideline you till you add more money to your account. A single system may produce as good or better results, but with a far larger risk factor.
Rather than go through this roller coaster ride, it would make more sense to reduce the chance of trading a system that may have a short shelf life, and instead, mix up your systems with some day trading and some short term trading approaches. This will greatly reduce your day to day drawdowns, and not only give you a greater chance for success, but will also greatly alleviate your stress factor.
An example of using this approach is shown in the “Multiple Trade System Approach” as shown on our web site, This is best illustrated by showing the relatively smooth account balance chart for the last three years. This shows the results of taking the results from 4 trading systems –One day trading and three short term .
A continuously smoother advancing profit line than even that shown of the most successful of all the four trading systems – the Minor Trend Trading System.
If success, achievement, profit and the chance of attaining great wealth are your goals, there is no better way of attaining this end than by mixing up your trading approach and diversifying your trading systems.
GOOD LUCK AND GOOD TRADING
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