Why Diversification Of Trading Strategies Is So Important

If you trade long enough, there’s going to be some things that you did or some things that you didn’t do that you regret. And for me, one of the things that I regret the most early in my trading career was not diversifying early enough. When I first started trading, I was trading, trading, following strategy on daily charts in the long term on Australian stocks, and that was great. I made a tonne of money. That system did really well and it really boosted my account. Actually, I ended up taking my account from 15,000 or thousand and a half thousand dollars when I first launched that strategy to well over $400,000 before I added even a second system. And I can’t tell you how much I regret that now because no one strategy makes money all the time. There’s always market situations where one strategy works and another strategy doesn’t.

Maybe you’ve got a smooth trending market and that means trend following works, but mean reversion isn’t so great. Maybe you’ve got a more volatile market, mean reversion works trend following is not so great and so on. So there’s different market conditions that happen all of the time. Now, the mistake that I made was thinking that that smooth trend that I was in, that smooth trending market, rather in the Australian stocks at the time, was going to last forever. And it didn’t. And I stuck. I held onto that strategy because that strategy had made me money and I held onto it for way too long. I still trade trend following in Australian stocks because it works great, but it doesn’t work all the time. Sometimes there’s flat spots, sometimes there’s drawdown. And had I learned about diversification of different strategies, different markets, different timeframes earlier today, I would be dramatically better off, far more wealthy because I would’ve had systems that made money in a variety of market conditions and I could have grown my account much more smoothly and consistently over time.

So my biggest regret was not diversifying early enough. And here’s the question for you. What do you think your biggest trading regret is going to be when you look at the way you’re trading right now and if you made your trading decisions the way you’re currently making them for the next 10, 20 years, what do you think you might regret? Challenging question. I know, but you want think ahead because trading is about compounding. And compounding requires time. And in order to get the most time and the best compounding, you want to establish your diversified portfolio of strategies sooner. You don’t want to take 10 years to learn to trade. You don’t want to take 10 years to learn to diversify or systemize your trading or learn to back test because that time is time that you don’t get compounding. I made that mistake. I don’t want you to make that mistake as well.

I’ve still done very well out of it, but I would’ve done far better had I learned more quickly, had I diversified sooner and smoothed my equity curve out with different strategies, different markets, different timeframe, so diversified, sooner, trade, different markets, different strategies, different timeframes, and watch how much better your trading becomes and how much more confident you’re going to be in your trading future. My name’s Adrian Reid. This is Enlightened Stock Trading. Let me know, are you diversified enough yet or is that something you are going to regret? Comment up below, let me know what you think and I’ll see you in the next video. Bye for now.