Momentum trading is a strategy based on the idea that assets which have been rising in price tend to keep rising, and assets that have been falling tend to keep falling — at least in the short term.
Momentum traders look for strong price trends and try to ride them, buying into rising assets and selling before the trend reverses. It's a more active approach than DCA and requires monitoring charts, volume, and market signals regularly.
It can be profitable but also carries more risk — timing an exit wrong can wipe out gains quickly. It's best approached once you're comfortable with the basics and understand how to manage risk and set stop-losses.
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Diversification & Currency Risk
Diversification is super important — growth can come from anywhere, any company in any country. Wherever that growth may be, we need to make sure our portfolio can capture it. That means spreading investments across different sectors, asset classes, and geographies rather than putting everything in one place.
Think of it like this: if all your money is in Australian stocks and the Australian market has a bad year, your whole portfolio suffers. But if you're also invested in the US, Europe, and Asia, a downturn in one region can be offset by growth in another.
There's an important catch though — currency fluctuations. When you invest in overseas markets, your returns aren't just tied to how those markets perform. They're also affected by the exchange rate between the Australian dollar and the foreign currency.
For example, say a US index fund returns 12% in a year — great! But if the Australian dollar strengthened against the US dollar over that same period, your actual return in AUD terms could be significantly less. The reverse is also true — a weakening AUD can actually boost your returns from overseas investments.
Because of this, we can't always expect to see the same returns that domestic investors in another country see. This is why it's smart to dip our hands into many buckets across the world — diversifying globally helps manage this risk while still giving your portfolio the best chance to capture growth wherever it happens.
DIVERSIFICATION
CURRENCY
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