As you know by now, if you want to achieve consistent profitability with much lower risk,

diversification strategy is essential. Diversification is about opening different trades at a time, but
you need to know that there are CORRECT and INCORRECT ways of doing the strategy, now we are
going to discuss them.

Bad Diversification:

Bad diversification happens if you have very few positions opened or if the products are very
similar. If you have just 2 – 3 positions, even though they can be different, this is not enough to give
you the benefits of proper diversification. Also opening similar positions is not only a bad
diversification but it can also have negative impact on your trading. Example:

Trade 1 – EURUSD

Trade 2 – USDJPY

Trade 3 – GBPUSD

In this example you have 3 different instruments for currency trading. Even though they are
different products, the diversification is bad for 2 reasons. First because they are all currencies and
currencies often move in similar time because of the central banks monetary policies being similar.
The other reason is that all the trades are related to the USD ( they all have USD as a building
element ). In this case all your trades will move at the same time when there is action n the USD.
They will either move in the same direction or against one another, depending on the directions you
took, on both of those options are negative for the trader.

Good Diversification

Good Diversification is done when there is a big enough number of trades and a big enough
variety. The trades need to be as unrelated to one another as possible. I will give you 2 examples of
different levels of what is considered to be a good diversification:

 Minimum Scale Good Diversification

The minimum scale good diversification is done with at least 6 trades and at least 3 different
categories of products. Often goo traders take 2 currencies, 2 commodities and 2 indexes.
Example:

Trade 1 – EURUSD

Trade 2 – GBPJPY

Trade 3 – Gold

Trade 4 – Crude oil

Trade 5 – Dax

Trade 6 – Nikkei

This kind of diversification allows a trader to diversify on different products but also on
different categories and different moving factors. Diversification always needs to be combined
with proper Risk Management and a good enough capital is required. Minimum scale good
diversification can be done with at least 3000 USD. This is the reason why the majority of traders
is starting with at least 3000 – 5000 USD initial capital – so that they can have the necessary
means to do proper small-scale trading with everything that is needed.

 Perfect Diversification

The best way to diversify the account is by trying to have different products, from all the
categories, related to the different market sessions and influenced from different factors on the
market. This kind of trading can be done with 13 – 14 positions at a time, involving 3 currencies,
3 commodities, 3 Indexes, 3 stocks and 1 – 2 Crypto currencies. Example:

Trade 1 – EURUSD

Trade 2 – GBPJPY

Trade 3 – CADNZD

Trade 4 – Gold

Trade 5 – Crude oil

Trade 6 – Wheat

Trade 7 – Dax

Trade 8 – Nikkei

Trade 9 – Dow Jones

Trade 10 – Apple

Trade 11 – Deutsche bank

Trade 12 – Alibaba

Trade 13 – Bitcoin

Trade 14 – Litecoin

This type of diversification is trying to have the trades as different as they can be on every
instance. Here you have completely different trades from all the 5 categories. The trades are
related to the 3 different market sessions and are influenced by different moving factors on the
markets. This is the sort of approach which can give a profit almost every day and it’s suitable for
traders that want to see consistent growth of their investment. To perform diversification on this
scale, investors start from 15000 – 20000 USD in their balance.