The world economic cycle often experiences boom and bust periods. Since the introduction of the financial markets, there have been many bubbles, crises, wars, global economic downturns, global economic euphoria, geopolitical problems, and many more.
With such circumstances, of course, you need a balanced portfolio to protect your investment capital. One of the wise pieces of advice in finance is to diversify and balance your portfolio to minimize risk in the event of a global financial crisis.
Or, from a trader’s point of view, what assets should you trade to keep your exposure stable?
A broader definition of safe haven assets
Safe haven assets are financial instruments expected to maintain or even gain value during periods of economic downturn. The price of this asset is constantly changing and does not depend on the economy as a whole. So, there is a high demand for this asset class in times of crisis.
Safe haven assets must have certain characteristics which include:
Assets that meet the above definition are:
Create a trading strategy that implements a balanced diversification strategy
we discussed about the safe-haven perspective from the perspective of investors. But for those of you who trade in financial markets, the above doesn’t make much sense, especially for Forex-Gold traders. It is not possible to implement a portfolio by buying, for example, US Government Bond CFDs, and holding them for a long period because the timeframe horizon is short term. One way to diversify our trading portfolio is to do a comparison of 3 assets.
Let’s compare the three graphs below:
XAUUSD Chart, TimeFrame D1
XAGUSD Chart, Timeframe D1
XAUXAG Chart, TimeFrame D1
Please compare the 3 charts above and apply your trading system to the three charts. Let’s say that based on your trading strategy on the XAUXAG chart, XAU may strengthen against XAG. But on the XAUUSD chart, your trading strategy gives a sell signal.
On the XAGUSD chart, your trading strategy gives a sell signal, too. Of course, it makes more sense to open a sell position on XAGUSD and diversify your risk by opening a sell position or a buy position on XAU with the number of lots or less risk than your main position on XAGUSD, hoping that the risk won’t be too big.
This is like the hedge, but here we compare the correlation between 3 currencies and enter the currency that is likely to move fast.
By using vtmarkets.com, you accept