Portfolio Construction
Building a diversified trading portfolio
Professional traders manage portfolios, not single trades.
Diversification principles: 1. Across instruments: Don't trade only EUR/USD 2. Across strategies: Combine trend + mean reversion 3. Across timeframes: Mix swing and day trades 4. Across asset classes: Forex + crypto + indices
Modern Portfolio Theory (MPT): - Maximize return for a given level of risk - Use uncorrelated assets for best diversification - The efficient frontier shows optimal portfolios
Practical allocation: - Core (60%): Main strategy on best instruments - Satellite (30%): Secondary strategies or instruments - Experimental (10%): Testing new approaches
Rebalance monthly based on performance.
Pro tip: Even if you only trade forex, diversify across strategies — a trend system for trending markets and a range system for ranging markets.
Common mistake: Putting all capital into one strategy on one pair. Better: Diversify to smooth returns and reduce drawdowns.
Key takeaways
- Diversify across instruments, strategies, and timeframes
- Uncorrelated assets provide best diversification
- Core/Satellite/Experimental allocation model
- Rebalance monthly
Quiz
- The goal of diversification is to: Answer: Reduce overall portfolio risk. Diversification reduces risk through uncorrelated assets and strategies.
Educational content, not financial advice.