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Diversify Your Trading Approach

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Sometimes in talking to traders you hear things such as “I trade the Dow.”  “I trade the NQ.”  These traders focus their attention on one market.  As well, they will usually call themselves either a scalper or a day trader.  There is nothing wrong with keeping laser-focus on a particular style or market but I fear some are missing out on some solid opportunities.

I started my trading career in the currency markets.  Retail Forex, to be exact.  It had a low barrier to entry and there was a ton of “trading education” surrounding it.  Day trading these markets can be a test of patience at times.  Toss in spread costs and news releases that add crazy whipsaw at times, it can also be a hazard.  There was an article published last year that stated at one of the biggest brokers, “77% of traders lose money each quarter.”  How about this stat where Gain Capital stated that they make on average $2900 from each active trader and that the average account was $3000!!

There is no rags to riches story I can share with you.  I didn’t blow out accounts only to find the grail.  With modest goals and understanding the pitfalls, I stayed away from that 77% group.  Still though, I was not fussy on paying what I was to get into a day trade considering futures were a lot cheaper.  I started to pay more attention to high risk/reward swing trading setups because it was more cost effective.  Since currencies generally have some nice swings, I wanted to spend more time looking for swing opportunities and less on day trades.

When I was presented with trading a Futures market in a stock index, I didn’t lose sight of swing trading.  It occurred to me that I could trade for income in the Futures market and look for a more “capital growth” approach in the Forex swings.

Here is a very recent example:

EURUSD

This screen capture is a short trade taken on the EURUSD currency pair on August 7.  The initial risk on this trade was 25 pips and I was looking for a 166-pip target.  There was a scale out at 2344, which banked 83 pips. As you can see from the graphic, price just missed hitting the profit target.  After this screen cap, I did lower the stop to 2330 to lock in profit (an extra 97 pips) but the price did fall to the full target on Aug 10.

Trading offers all kinds of opportunities to make money.  The issue is that many traders are fixated on one approach.  By adding diversity to your trading business such as swing trading, you are able to passively reap the rewards that come with the bigger moves.  If you happen to miss a day in your day trading, you do not adversely affect your bottom line IF you have diversified.  In addition, diversity has the ability to keep your overall risk capital equity curve in a favorable trend IF you are taking the correct approach.

Once you have found success in one approach and can fit it another, you may want to investigate adding some variety to your trading business.  If done correctly, you will diversify your trading approach and boost your bottom line without too much extra effort.

About Coach Shane

A Forex analyst, Shane got started in Forex mostly due to the low initial capital required, and diversifies with both day and swing trading. Shane lives in Toronto, Canada.
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