Why Don’t You Hear More About Diversification?
OK, so if diversification is so great, why doesn’t the average retail trader hear more about it? How come very few people talk about diversification?
1) It Is Hard To Do For The Little Guy Let’s face it, there are a lot of little guys in trading. I should know, I was one of them way back when, struggling to survive with my $5,000 account. I felt lucky to trade one system back then, much less 4 or 5. I just did not have the margin to be in many different trades. To be properly diversified, you need a larger account. Most people, unfortunately, never get to that point.
2) There is Nothing For Vendors To Sell How does a typical vendor sell “diversification?” He really can’t. It is not a fancy new indicator, a “secret” entry method, or something you can see on a mini S&P price chart candlesticks. So, if there is nothing to sell, there is no reason to talk about it.
3) Why Multiple Systems, When Many Vendors Sell “Perfect” Systems So many of the scummy trading vendors market their trading system as the ultimate, the best, the only one you’ll ever need. Obviously, this sales scheme works, or they would not do it. For them to admit that their super terrific trading strategy needs the help of diversification just leads to their whole sales pitch falling apart. And they cannot handle that!
4) It Is An Advanced Concept In this fast paced, need it now Internet age, people want answers fast, and don’t want to take time to learn the right way to do things. People want to be Warren Buffett, but most aren’t willing to put the time or effort into learning something complicated. Diversification takes analysis, and also requires multiple trading strategies. It can be done, but it is work and it is tricky at first. But once you understand it, and develop trading algorithms to exploit it, diversification can become a trader’s best friend.