Rule # 4 on being a profitable trader: Be Diversified.
I cannot for the life of me understand traders that only want to trade one thing.
“I just feel like currencies are my thing.”
“Gold just feels like where the action is.”
Or: “I grew up around cotton, corn, or cattle, so I just feel like I understand it better.”
That all sounds like a novice talking.
Who cares what the market is.
I mean, if you are trading completely by fundamentals – then I suppose specialization is best. One would have to really understand a market before you can fundamentally say where it “should” be.
All I know is that trading 100% on fundamentals is essentially saying: “Based on my expertise the market should be trading at X. The market is actually trading at Y. I bet I am ‘right’ and the market is ‘wrong.'”
Here is a new flash. The market can be “sustainably wrong” for a lot longer than you can.
In short, the market is always right.
Good luck betting against it.
The great line on systematic trading is: “Don’t tell me: ‘You have no experience trading that.’ It’s a data point. I will trade anything.”
When one market is lackluster it is not a big deal because that one market is .5% to 1% of your portfolio.
With diversification, markets that are moving (i.e. profitable) can compensate for markets that are not.
No diversification in your trading implies that you are going to try to outsmart the market.
Diversification in your trading implies you are trying to take what the market gives you.
Don’t be an amateur about it. Take what the market gives you.
If you are going to trade, you have got to be diversified.