Diversification is a risk management strategy that involves investing in a variety of different assets or securities in order to reduce the overall risk of the portfolio. Diversification works on the principle that by holding a wide range of assets, an investor can reduce the impact of any one asset on the overall performance of the portfolio. For example, if an investor holds stocks from different industries and countries, the performance of one stock is less likely to have a significant impact on the overall performance of the portfolio. Diversification can help to reduce volatility and smooth out returns, making it a key part of any risk management strategy.
“The best traders aren’t afraid. They aren’t afraid because they have developed attitudes that give them the greatest degree of mental flexibility to flow in and out of trades, based on what the market is telling them about the possibilities from its perspective. At the same time, the best traders have developed attitudes that prevent them from getting reckless.” – Mark Douglas