Portfolio trading on Forex
The fact that successful trading on Forex market requires a well-thought-out and tested trading system is known to almost all traders. It is discussed on forums and in manuals. Besides, it is considered that trading algorithm should always be in line with the rules stipulated in this system. Only in this case a trader may count on stable profit regardless of the market behavior.
But the practice shows that no matter how perfect the trading system is, it may fail sooner or later. It is well known that surprises are possible in real trading and even the most profitable trading strategy can turn out to be inefficient or not unprofitable at a certain period of time. And this may happen regardless of the trading method used by a trader - manual or mechanical.
Functioning of a trading system
When using a manual trading system, a trader is supposed to perform certain actions strictly. In this case, time of trading, presence of conditions for entering the market, and meeting of conditions for exiting a trading position are taken into account. A trader follows all this on his/her own and fulfills conditions, which are set in the trading system, independently.
Mechanical trading (by Expert Advisors) implies a similar trading algorithm, but with the help of a software product. In such trading there are no emotional factors inherent to a real person, and the pre-prepared algorithm of trading actions is performed by the robot clearly, without any deviations from the rules.
Trading system vulnerability
So what are the vulnerabilities of a trading system, and why can traders have problems when using it in one way or another? The thing is that if we analyze a lot of information related to trading on Forex, we can come to a conclusion - the market is built in a way that its behavior does not always fit a formal perception. Some even compare it with a living organism, which behavior is difficult to predict and not always possible. Therefore, no matter how well-thought-out and tested a trading system is, it will not be able to respond adequately to non-standard situations when the market turns out to be a dead end.
What to do in such a case? The answer is simple. You need to have an arsenal of several trading strategies and use them depending on the conditions, which the market dictates.
In other words, portfolio trading at Forex is a tool that can provide a stable and truly profitable trading, regardless of how the market behaves.
What is forex portfolio trading?
- Forex portfolio trading is not just a collection of different trading strategies, but also the ability to use them in the market, no matter how the market is doing.
For instance, if you follow a system, you open trades solely on the trend. It makes you profit and you are used to it. But what do you do when the trending price movement is over and the market goes into a phase of prolonged sideways movement? This is the scenario where portfolio trading comes into play. The trend strategy gives way to a system which allows you to make a profit during the flat period.
Thus, by applying portfolio trading you can get:
- Uninterrupted trading opportunities in the market. - Balanced risks. - Reduced drawdown levels. - A smoother growth curve for your account.
But to get the efficiency of the portfolio you need to include only a proven system. Also you need to learn how to correctly assess the current market situation, so the chosen strategy will be exactly in line with the actual market situation.
What can I include in a portfolio for forex trading?
The following techniques can be recommended for inclusion in a portfolio:
1. swing trading system. Swing trading involves opening trades for a relatively short period of time. Usually the trading period is not longer than one trading week. The trades are closed manually or by stop-loss. This method is not only profitable, but also allows essentially limiting the risk component of trading.
2. The system of trading in the direction of the trend. Trending forex strategies are used during steady unidirectional price movements, and show good results.
3. Scalping forex strategies can be used for short-term trading. Despite the fact that this method of trade is often considered risky, in good hands it brings good profits.
4. Counter-trend trading system. You may not use this method very often, but it is necessary to have it in your arsenal.
5. It is a trading system, adapted to the lateral movement of the price (flat).
Thus, using different strategies from the portfolio it is possible to achieve impressive results. The main thing is to follow the dynamics of the market, and in time to switch to the strategy that is more consistent with current events in the Forex market.