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  1. #1
    Veteran Member Ammeo's Avatar

    Diversification or Position Sizing? !!!

    What in your view is the more favorable method when utilizing profits in an account. Do u increase the size of your positions/contracts or do you diversify your portfolio among many multiple contracts/positions across different assets ?

  2. #2
    Solid Member
    I don’t have enough capital for a proper diversification that’s why I prefer to change my position size depending on my analyses and my feeling about the particular trade. If I am surer I trade bigger, if I am not so sure I trade smaller. I know that you could say that this is very subjective way of trading but for now it works very fine for me.

  3. #3
    Legendry Member willyw's Avatar
    Quote Originally Posted by Rosen33 View Post
    I donít have enough capital for a proper diversification thatís why I prefer to change my position size depending on my analyses and my feeling about the particular trade. If I am surer I trade bigger, if I am not so sure I trade smaller. I know that you could say that this is very subjective way of trading but for now it works very fine for me.
    It is always unwise to trade big even if you are very sure of the your analysis. It is advisable to have proper risk and money mangement control on your account. If you really are tempted to trade, you could use only the profits that you have made to trade big and in the event if market turns bad, you only loose what you have earn and you still have your initial captial to keep trading and not burnt your account. there are many many instances, many traders are smooth in their trading long time but just 1 wrong move, the whole account is burnt.

  4. #4
    Specialist Member marvel's Avatar
    Quote Originally Posted by willyw View Post
    It is always unwise to trade big even if you are very sure of the your analysis. It is advisable to have proper risk and money mangement control on your account. If you really are tempted to trade, you could use only the profits that you have made to trade big and in the event if market turns bad, you only loose what you have earn and you still have your initial captial to keep trading and not burnt your account. there are many many instances, many traders are smooth in their trading long time but just 1 wrong move, the whole account is burnt.
    Totally right willyw. I also have a friend of mine who traded 7 months in profits and finally he decided that he is so good that he could trade very big. He lose on his first big position, than he enter second even bigger he lose again, the third was profitable but he was almost 50% down after that 3 trades. Now he is trading again small and profitable but still couldn’t recouped the 2 bad trades...

  5. #5
    Legendry Member willyw's Avatar
    Quote Originally Posted by marvel View Post
    Totally right willyw. I also have a friend of mine who traded 7 months in profits and finally he decided that he is so good that he could trade very big. He lose on his first big position, than he enter second even bigger he lose again, the third was profitable but he was almost 50% down after that 3 trades. Now he is trading again small and profitable but still couldnít recouped the 2 bad trades...
    Nowadays all traders are trading from home. They do not have the chance to trade in a forex trading room to experience to see how other traders are trading and learnt from other traders experience how they lost/burnt their account; be it a small timer or a big timer. A good trader is not only making profit but risk control and fund management.

  6. #6
    Veteran Member Ammeo's Avatar
    Quote Originally Posted by marvel View Post
    Totally right willyw. I also have a friend of mine who traded 7 months in profits and finally he decided that he is so good that he could trade very big. He lose on his first big position, than he enter second even bigger he lose again, the third was profitable but he was almost 50% down after that 3 trades. Now he is trading again small and profitable but still couldn’t recouped the 2 bad trades...
    Yes it happens sometimes..Money management cant be ignored in the trading world..
    I never increase my positions on any asset (my position on any single asset is 5% of my total equity) even if im much sure the position may go in my favor...
    Diversification is the best form of risk management , the more diversified ur portfolio, the lower the risk.

  7. #7
    Specialist Member LesterK's Avatar
    You are right Ammeo! The diversification is the best form of risk management, but only if you do it properly. If you diversify between correlated assets it could happen some surprises which are not expected. I want to ask you if in your portfolio a single position is 5%, does it mean that your risk on the single trade is 5% and the total risk could be greater if you have more than one position?

  8. #8
    Legendry Member Michael Hodges's Avatar
    I totally agree with opinion that sticking to one or two assets and learning to trade them consistently is the best approach, with money management and position sizing. diversification is a great way to lose money faster and generate more income for your broker.

  9. #9
    Solid Member
    Quote Originally Posted by Michael Hodges View Post
    I totally agree with opinion that sticking to one or two assets and learning to trade them consistently is the best approach, with money management and position sizing. diversification is a great way to lose money faster and generate more income for your broker.
    Absolutely agree with you Michael! I didn’t want to argue with Ammeo as he has good point, but as Mr. Buffet said diversification is needed when you don’t understand nothing and want to reduce your risk by risking small pieces here and there blindly. If you are a good trader you could stick to your strategy and trade only few assets and be profitable without diversification needed.

  10. #10
    Legendry Member willyw's Avatar
    Never trade too many currency pairs at the same time. Diversification does not really diversify your risk but it actually diversify your attention and concentration which is risky and a trader might risk getting emotionally involve which is not healthy for trading.

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