The Concentration Risk Problem
Many traders make the mistake of putting all their capital into one pair or strategy. If that approach stops working, they face complete account wipeout. Professional traders diversify across multiple pairs, strategies, and timeframes to reduce overall portfolio risk.
Types of Portfolio Diversification
1. Pair Diversification - Trading multiple currency pairs reduces correlation risk. If EUR/USD stalls, GBP/USD might offer setups.
2. Strategy Diversification - Using multiple trading strategies (scalping + swing trading, order blocks + breakouts) ensures when one strategy stalls, others still produce.
3. Timeframe Diversification - Trading daily, 4-hour, and 1-hour timeframes simultaneously captures opportunities across different time horizons.
4. Correlation Diversification - Trading pairs that don't move together (EUR/USD and USD/JPY are negatively correlated) reduces drawdown risk.
Recommended Portfolio Structure
For $25,000 Account:
- 40% allocation: EUR/USD (most liquid, best order blocks)
- 30% allocation: GBP/USD (good volatility, trending)
- 30% allocation: USD/JPY or other pairs (different correlation)
- Risk same 1% per trade but spread across positions
For $100,000+ Account:
- Trade 3-4 pairs simultaneously
- Mix of trending (EUR/USD) and ranging (USD/CAD) pairs
- Combine timeframes: 3-4 daily setups + 5-8 4-hour setups daily
- Multiple strategies: Order blocks + FVG + Breakouts
Position Allocation Methods
Method 1: Equal Weighting - Allocate same percentage to each pair. Simple but ignores pair characteristics.
Method 2: Quality Weighting - Allocate more capital to highest-conviction setups. Better risk/reward.
Method 2: Volatility Weighting - Allocate smaller positions to volatile pairs (USD/JPY) and larger positions to stable pairs (EUR/USD).
Reducing Correlation Risk
Pairs that move together increase portfolio risk:
- Highly Correlated (avoid trading together): EUR/USD + GBP/USD (both £ and €)
- Moderately Correlated (acceptable): EUR/USD + USD/JPY (different currencies)
- Uncorrelated (best): EUR/USD + USD/CAD + USD/JPY (diversified)
By trading uncorrelated pairs, a loss in EUR/USD might be offset by gains in USD/JPY.
Maximum Drawdown Protection
Portfolio-level risk management:
- Individual trade risk: 1% per trade
- Daily risk limit: 5% of account
- Weekly risk limit: 10% of account
- Monthly risk limit: 15% of account
Once any limit is hit, stop trading for that period. This prevents cascading losses.
Real-World Portfolio Example
$100,000 account with portfolio approach: Day 1: - EUR/USD 4-hour: Risk $200, make $300 profit - GBP/USD daily: Risk $150, make $0 (breakeven) - USD/JPY 4-hour: Risk $100, lose $100 - Daily profit: +$200 total risk only $450 (0.45%) Day 2: - EUR/USD daily: Risk $200, make $600 - GBP/USD 4-hour: Risk $150, make $100 - USD/CAD daily: Risk $100, lose $100 - Daily profit: +$600 total risk $450 (0.45%) Over month: Multiple strategies + pairs = steady growth with reduced correlation risk
FAQ
A: No. Start with 1-2 pairs you know well. Add more pairs as you gain experience. Quality over quantity.
A: Yes, this is best approach. Your proven order block strategy works on EUR/USD, GBP/USD, and USD/JPY. Deploy it across multiple pairs.