How do you diversify your trades?

Discussion in 'Trading' started by Sure Chap, May 17, 2016.

  1. What's your trading setup? What portion of your portfolio do you allocate for longterm and short term trades? I'm still learning about trading and it looks like having a setup that is relatively safe in the long term is good, but I like the higher risk/reward of short term trading. If I become profitable swing trading (still negative) would it be better just to focus on short term swing trading? It seems to be fairly easy and safe to invest in stocks and etfs, but my returns aren't near what I want.

    Any ideas, advice for a newbie?
  2. K-Pia


    Don't build a Chinese wall between timeframes.
    Since they are more than correlated. By that I mean ...
    If you blow up either of your account, it will have consequences.
    I think allocation depends on the setup VS his timeframe.
    You could ask Kelly (Criterion) for the allocation.
    It doesn't have to seem anything...
    It is what it is. Don't be fooled.

    You diversify to disminish risk.
    It works by adding independent variables.
    It's the central limit theorem. The distribution,
    at the limit of diversification, becomes a bell curve.

    Warren Buffet said :
    Diversification is protection against the ignorance.

    If you're goal is to diversify then buy index or ETFs.
    A la Jack Bogle. Reduce costs. Dollar Cost Averaging...

    If you want to time the market. Build strategies.
    Analyse them. Know the risk / reward, Max DrawDown, P(G) ...
    And allocate half what the kelly criterion tells you to allocate.
    Try to analyze each strategy, as well as the whole bundle.

    Hope that someone else can answer.
    I gave you my fast & crude point of view.
    Don't know if it helps. Don't be afraid to ask.
  3. Trading styles, strategies, setups, and portfolio allocations vary wildly. Some traders hold their positions for milliseconds, and some hold for years. Some trade with no leverage, and some trade with the 1000:1 leverage. Some trade with the trend, and others trade trend reversals. Some trade technicals, while others trade fundamentals. Some trade their "gut feeling", while others trade their egos. Some trade a single instrument, while others trade hundreds of them.

    In this plethora of styles and choices, you have to find your own. The best advice that I can offer is to get involved in automated/systematic trading, test everything you encounter, and then start coming up with your own ideas.
    Last edited: May 18, 2016
    K-Pia likes this.
  4. I dont diversify one iota , in fact quite the opposite . I have no need to spread the risk , more of an exploit my edge to the max with known reliable systems and markets , I think diversifying is for clueless investors tbh , has its purposes i suppose but its about spreading mediocrity and hoping bull market takes care of business
    masterm1ne, speedo and SouthbeachCTA like this.
  5. Handle123


    Trade setup? One must ask oneself your risk aversion/and be honest if you have brains, not trying to insult, but males often think in terms of dreaming and not reality. "Setup" you might not understand this answer, but it is the least part of the equation of trading, you first have to understand charting and being able to read a chart like it attached to you. You study and learn when not to take trades, and what to do after you are in a trade.."what should I do now"? I wasted way too much time in my beginning on entries, think in terms of trading risk, how can you reduce the risk, cause if you can reduce risk, you can put on more.

    Age, if you in your twenties you can be a wee bit more aggressive in your account, but remember aggressive with knowledge is just little more risk, aggressive and little knowledge might mean losing it all.

    If you can't make steady growth in long term trading, you will be bait in shorter term. Do you know the difference between 100% return in long term and 100% in short term? Commissions and slippage, in day trading, you can often expect to have to make 100% return to breakeven cause of commissions, they really add up. When doing long term off weekly charts, you back test great deal, learn to program makes it far easier/faster. When you can do couple years making steady equity growth, then go shorter timeframe where you have to memorize faster and on and on. Do you have a Trading Plan and do you have all the answers to all your questions? Cause until you do, no point in losing money.

    And in long term, find decent companies that pay dividends, it like free money. Think of what you use, you like a good Hamburger? Find good stocks that make good hamburgers, people too often forget stocks are products of something, what do you use a good deal of the time and others use same products, then find companies that in retracement, but please do understand trends.

    Good luck.
    Xela likes this.
  6. There are no 'levels' of success you have to achieve before proceeding to a more so-called advance level.
    Like another poster said, there's a "plethora" of things to trade and styles thereof.

    It's important to know and realize what fits you;
    Someone could be killing it in one arena, with one specific game plan...but if you ask them to trade something else...they will fall flat on their face.:confused::sneaky:

    You generally don't Diversify trades. You trade what you know, and you go for the kill with patience.
    Diversifying is more of a longterm investor word. You can't get that hurt, but you also can't gain any real traction. :banghead::fistbump:
    Last edited: May 18, 2016
    masterm1ne likes this.
  7. CBC


    Every1 has more advanced advice than me.

    Here's something basic

    I recommend to use a very small sum of money when you start till you get used to everything. :)
    Gotcha likes this.
  8. d08


    One great edge is good, combining two great edges will yield amazing results due to compounding and lesser drawdowns.
    People criticizing diversification don't properly understand it. Trading multiple non-correlated instruments and mixing time-frames will radically improve the results.
    autotradingalgos likes this.
  9. From best (highest) to worst (lowest) diversification:

    1. (highest) trading style - eg trend following, long short equity, selling options, risk arb, scalping, relative value ...
    2. asset class - eg equities, energy futures, ...
    3. countries within asset classes, and to a lesser extent instruments within countries - eg US equities, UK equities, ... Apple, Facebook, ...
    4. indicators / trading rules within a given trading style - eg moving averages, breakouts
    5. (lowest) time frame - although minute by minute, and month by month, trading are relatively undiversified, adjacent time periods are highly correlated (assuming you're using the same indicators / style for both)

    Finally; it costs more to trade short term (unless your style calls for passive execution) so I'd advise longer term trading unless / until you know what you're doing.

    sampitroda93 and garachen like this.
  10. Totally agree with d08 - diversification of even OK edges will yield better results than a single very strong edge. From my experience the reduction of drawdowns really helps in calming the soul and eventually really benefiting from compounding effects. Good trading to all
    #10     May 18, 2016