Diversification Is Critical
07/11/2008 12:00 am EST
Diversification is a critical but under appreciated tool in your forex trading arsenal. I have talked in the past about the importance for forex traders to be diversified but that means more than one thing. Good traders are diversified across asset classes, individual assets within a class and investment instruments. In today's video I will review the first two diversification techniques and start a three-part series on how to improve your diversification by using different investment instruments. In this case, I will contrast how you use short options to make a directional investment but simultaneously hedge against some risk and volatility. The fundamental advantage of being a trend trader while selling options is that the market may move in the direction of your forcast, remain flat or even trend against you moderately and you will still walk away with a profit. This won't insulate you from risk but it will help to smooth your overall equity curve.