“Don’t Put Your Eggs in One Basketball” in Forex Trading
Have you ever heard this saying: “Don’t put your eggs in one basketball” ? Don’t place your eggs in one basket. In the world of investment, this can mean that you should not put all your capital in one investment instrument. The question: can the concept be applied in forex trading ?
Most people apply the above principles in forex trading. They then open transactions into several currency pairs , for example EUR / USD, GBP / USD, AUD / USD and / or USD / JPY at one time. In other words, they can open positions in several currency pairs at a time.
Is this the right forex strategy ? Actually it isn’t, because by doing so, one’s concentration will be fragmented. In fact, focus is something that must be owned by every trader to be able to carry out the forex strategy that he has well.
Reasons that accompany strategies to open positions in several currency pairs.
Diversification is good for your investment portfolio. If you talk about investment: yes, you should divide your wealth into several forms of investment, such as property, precious metals, and so on.
But what if talking in the context of forex trading ?
In forex trading, you are also required to be able to manage your capital properly. It’s just that, the way is not by applying the concept of “eggs in a basket” literally.
Then what should I do ?
Application of “money management”
Rather different from the distribution of wealth into various investment instruments; in trading, what is meant by capital management (money management) is more to how much capital you will use for one transaction. Then, how much risk tolerance of the capital you have.
An easy example is this:
Let’s say you have money of $ 10,000 then you risk 5% for each transaction. That means you will only experience a loss of $ 500 per transaction, if your analysis is wrong. Based on this scenario, you can also specify how many lots you will open each time you make a transaction. For example 1 or a maximum of 2 lots.
So, you should not be angry by using all the capital you have to open a transaction. For example with $ 10,000 you open a transaction of 6 or 8 lots. If that’s what you do, the price of “swaying” just a little will make you messy!
That’s how to apply the concept of “don’t put your eggs in one basketball” which is more appropriate, as a capital management strategy in forex trading.
Why shouldn’t you open positions in many currency pairs at once?
As stated above, focus is something every trader must have. If you open a position on many currency pairs at once, then your attention will automatically be split into all the pairs . Whereas in trading there are many things you must observe, such as the potential for trend changes, the appearance of signals or patterns that require you to close positions, and so on.
Actually, you should not open positions in multiple currency pairs at once. But make sure you have more than enough concentration ability to monitor all of these positions.
Focus will help you to recognize the opportunities that arise as well as “warning” when you have to get out of the market.
So, watch your eggs.