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ABSTRACTMost novel forex traders trade only one pair at time trying to make money using indicators, trading systems and money management. In this article I will explain an easy way to stick to the trend in Forex diversifying your risk through a portfolio of currency pairs. In other words, readers will learn to compose portfolios of pairs so that the losses of some pairs should be compensated, at least, or even exceeded, by the benefits of rest.1 INTRODUCTIONTo diversify our risk in Forex we are going to create a "Ranking of pairs" using an homogeneous measure. There are several techniques about how to create a ranking of pairs. In this article I will give a very practical view of a general method that readers can use to compose their own Forex portfolio. This method is illustrated with an example based on the Schelling's approach[4], which I think that it can be very interesting for this community.The article starts describing shortly some considerations (concepts and indicators) necessary to understand the example. Then all the steps of the method are detailed through an example using the Schelling's approach. Next, the article discusses a brief strategy based on the created portfoli[/4]…
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SmithJr avatar
SmithJr 27 Sep.

Dear @doctortyby, thank you for your words. Regarding your comment, I don't really know if you have experience with Forex portfolios, or general portfolio management. If yes, can you please elaborate a little bit more please? If not, are you interested in this topic? I am considering to continue with a serie of articles related to this concepts. Green pips!

SmithJr avatar
SmithJr 30 Sep.

Thanks all for the nice words and support :)
Continue the discussion here:

http://www.dukascopy.com/swiss/english/forex/jforex/forum/viewtopic.php?f=82&t=48109&p=67134#p67134

Good trades for all!

fxigor avatar
fxigor 29 Oct.

Hi, nice clear article.I will read more about "heatmap" concept.Thank you for suggestion.

Phonemany avatar
Phonemany 12 Jan.

Hi SmithJr, I'd like to ask you more about collecting data to create the forex portfolio. I'm not quite sure daily and weekly data which one should I use to create the table above?

mcquak avatar
mcquak 9 Aug.

Very nice article.
Sorry for ressurection a history, I found the article through the google search, when I was after to find some details about portfolio rebalacing.
IMO, this is really great piece of reading, stuffed with practical informations and having guidence for ohters.
If only more articles would have such quality as this one.

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6/48
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Introduction:After writing my previous article on Risk Management I received some questions about how I use it and how successful it is. So I thought that this, my next article, could address some of those points and could be used to show you a "model Portfolio" likened to those seen at hedge funds and large mutual funds.To start with this isn't really a set and forget portfolio where I am setting out to achieve high yield via dividends, or protect my capital with low beta investments. Instead in this it requires daily monitoring and constant buying and selling of various securities.Portfolio:As mentioned in my previous article, I split up my portfolio into different areas defined by Percentages of total account value, as seen below.DJIA - 25%US 5YR - 15%Gold - 25%USDJPY - 10%US 10 YR - 15%High beta - 10%I will go through each section and show why I have these and why their weightings are as such.DJIA - Dow Jones Industrial Average:This basically contains 30 of the largest companies within the US which is indexed. There are many ways to trade it from owning individual stocks within it or trading forms of derivatives such  as Leveraged ETF's or Futures contracts.Personally I have my…
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AdrianWS avatar
AdrianWS 19 June

Thank you all for the kind words, and @Nicco - Yes.

fifty_fifty avatar

Brilliant! Thanks for sharing your experience! +1

AdrianWS avatar
AdrianWS 24 June

Since Last time I updated it, This is the Percentage change from then.

DJIA - 1.8% / / US 5YR - 0.1% / / Gold - -1.6% / / USDJPY - 1.4% (~7% levered) / / US10YR - 0% / / High Beta - 2.1%

doctortyby avatar
doctortyby 27 June

Congratulations for this article. You use only the Usd/Jpy pair in your basket. Why not Eur/Usd and Eur/Jpy?

AdrianWS avatar
AdrianWS 27 June

@doctor - Good question, I feel that in the long term this is going to be easiest to predict and I feel we could see 90-100 next year. I did (last summer) have short EURUSD from 1.4550 and held with low leverage but covered that at 1.27 and believe the direction in the long term is going to be harder to predict as it could see a short cover over 1.30 or could drop to 1.15. Also USDJPY acts as a partial hedge against treasury exposure. In my opinion USDJPY is going to be most predictable over next year.

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25/67
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You
will see proof that using only one strategy with positive expectancy can make
your rich but can also make you poor. Trading results depend upon the
statistical distribution of trades which nobody can control.
What
you CAN control are many other factors, amongst them is your investment portfolio
structure, or better, the various strategy-market combinations. Doing this
right increases the chance of your trading being a profitable activity. See how
it is done.
Note of caution. This article is for
a serious trader who is prepared to put to use parts of his brain that process
mathematics and related sciences. Traders need to use mathematics and statistics for
proper analysis in order to develop proper trading approaches. Please note also that numbers are shown using the European format ie. a comma is used as a decimal separator and a full stop as a thousands separator.
What is the standard advice you hear/read about money management (MM)?
The standard
advice one gets when s/he starts trading is to trade (very) small. “Risk 1% or
less per trade. Maybe 2%. Maximum 3% not too often!”
Such advice
is normally not supported by any serious background information. Why not risk
0,1% or 10% …
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positive avatar
positive 23 May

I always prefer an R:R of atleast 1:1.5 ..Lot of traders fail to manage this aspect and loseout. Ascertaining target is a combo of skill and patience. Very well presented.

NagarajaAdiga avatar

right! most of the traders can't control emotions and people have taken trading as gambling which is why all these RR ratio exist. In my experience trading with lower leverage and averaging the trades can give a fantastic return in long run. nice article

belman avatar
belman 24 May

Great !

Furian avatar
Furian 26 May

very usefull. keep good work +1

adask avatar
adask 31 May

Good article.

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