trading multiple currency pairs

[aliasentric]

My opinion is that it would be better to simply increase the lot size on one pair if you want to increase profit. Since it would seem that if pairs are moving in the same direction or opposite, then trading them at the same time is increasing your risk, or limiting your profit on the trade that is a winner.

I've heard some trade multiple pairs as a sort of "hedging" method. At any rate, I'd be interested to hear from anyone who is consistently profitable trading multiple pairs at the same time, and why you think it is better than just trading one pair at a time.

 

[Martinghoul]

My opinion is that it would be better to simply increase the lot size on one pair if you want to increase profit. Since it would seem that if pairs are moving in the same direction or opposite, then trading them at the same time is increasing your risk, or limiting your profit on the trade that is a winner.

I've heard some trade multiple pairs as a sort of "hedging" method. At any rate, I'd be interested to hear from anyone who is consistently profitable trading multiple pairs at the same time, and why you think it is better than just trading one pair at a time.

I do it all the time... Your logic is somewhat flawed.

 

[Hakuna Matata]

yay! martinghoul is back!

 

[$oro$]

alisentric i'm no expert but here's what I do. I trade two portfolios, one systematically and one by discretion. By discretion, I mean its traded based on my global macro views thus I use many different pairs, from G10 to EM currencies. Anyhow, many of the pairs were correlated.

For instance last year, the risk-on/risk-off phenomenon was still strong - on risk on days you'll see all the risky currencies appreciating e.g. EM currencies, Eur etc. and vice-versa on risk averse days.

 

[aliasentric]

I do it all the time... Your logic is somewhat flawed.

I do know that most currency pairs are correlated in some way with other pairs, either move in the same direction or opposite direction. Virtually every time I've traded in more than one pair at the same time, I noticed that the second pair either moved in the same direction, or opposite direction of my first pair.

I assume you are consistently profitable? Why do you choose to trade multiple pairs verses just one at a time? What advantage do you think that gives you?

 

[aliasentric]

alisentric i'm no expert but here's what I do. I trade two portfolios, one systematically and one by discretion. By discretion, I mean its traded based on my global macro views thus I use many different pairs, from G10 to EM currencies. Anyhow, many of the pairs were correlated.

For instance last year, the risk-on/risk-off phenomenon was still strong - on risk on days you'll see all the risky currencies appreciating e.g. EM currencies, Eur etc. and vice-versa on risk averse days.

So, you are in multiple trades at the same time, then?

 

[aliasentric]

Because I like to keep things simple, one pair at a time works for me. Since i don't have to worry about any correlation with other pairs. I do know it also depends on what time frame you are looking at as some time frames the correlation is stronger than in other time frames.

At any rate, trading is pretty complicated, and I try to simplify wherever I can, and trading one pair at a time works for me. But I'm curious as to what advantage some think they get by entering multiple trades at a time, aside from the adrenaline rush 🙂

 

[counter_violent]

Because I like to keep things simple, one pair at a time works for me. Since i don't have to worry about any correlation with other pairs. I do know it also depends on what time frame you are looking at as some time frames the correlation is stronger than in other time frames.

At any rate, trading is pretty complicated, and I try to simplify wherever I can, and trading one pair at a time works for me. But I'm curious as to what advantage some think they get by entering multiple trades at a time, aside from the adrenaline rush 🙂

OK lets just nip this in the bud.

You say "one pair at a time works for me"
One pair in forex eg eurjpy, this means you are trading two currencies Euro and Yen. How do you filter which pairs to trade at any one time? If you pick pairs at random or because they are your favorites etc etc , they might not be the correct pairings to trade at that time.So, you very much do have to worry about correlation.

Lets take 6 of the most popular currencies and pair them off giving 15 cross permutations and 2 directions (long/short) 15x2=30.

Now, I respectfully submit that you have a 1 in 30 chance of being on the correct pair and in the correct direction at any given moment in time. The chances of being successful over a decent sample size are nigh on zero. Hopefully you can now see why that is the case.

 

[Hakuna Matata]

You have a pot of money in one currency, say USD.

You thing that other currencies are going appreciate more than USD.

You sell some USD and buy these currencies.

You think that other currencies are going to depreciate more than USD.

You borrow these currencies and swap them for USD.

 

[aliasentric]

OK lets just nip this in the bud.

You say "one pair at a time works for me"
One pair in forex eg eurjpy, this means you are trading two currencies Euro and Yen. How do you filter which pairs to trade at any one time? If you pick pairs at random or because they are your favorites etc etc , they might not be the correct pairings to trade at that time.So, you very much do have to worry about correlation.

Lets take 6 of the most popular currencies and pair them off giving 15 cross permutations and 2 directions (long/short) 15x2=30.

Now, I respectfully submit that you have a 1 in 30 chance of being on the correct pair and in the correct direction at any given moment in time. The chances of being successful over a decent sample size are nigh on zero. Hopefully you can now see why that is the case.

I agree with what you say, but don't see how it answers my question. I trade one pair at a time, so if I enter a trade in EUR/USD, I don't open another trade until I see this trade to fruition. I don't have to worry about correlation between pairs, if I trade only one pair at a time. Many people enter more than one trade at a time. I simply would like to know what advantage they think that gives them.

 

[aliasentric]

You have a pot of money in one currency, say USD.

You thing that other currencies are going appreciate more than USD.

You sell some USD and buy these currencies.

You think that other currencies are going to depreciate more than USD.

You borrow these currencies and swap them for USD.

Okay, I see the logic in this approach if you think USD will depreciate but you are not sure which currency would be the biggest winner, so you enter multiple trades. This approach would seem that it would rely on the news more than anything else. Not sure I'm comfortable putting that much trust in the hands of the media. But hey, if it is consistently profitable, then more power to you...

 

[$oro$]

So, you are in multiple trades at the same time, then?

Yes, I am always 'invested' on the discretionary end. It really depends on the opportunities.. That said if you're trading systematically, doing so on different currency pair is one form of diversification

 

[Martinghoul]

I do know that most currency pairs are correlated in some way with other pairs, either move in the same direction or opposite direction. Virtually every time I've traded in more than one pair at the same time, I noticed that the second pair either moved in the same direction, or opposite direction of my first pair.

I assume you are consistently profitable? Why do you choose to trade multiple pairs verses just one at a time? What advantage do you think that gives you?

Well, you see that is the key point... "Most currency pairs are correlated in some way with other pairs". What makes you say that? Over what time horizon have you observed this to be true? Have you considered the logical implications of such a statement?

If you think long and hard about these things, you will see the light, I am sure...

And as to being consistently profitable, I mustn't grumble... I also, like the others here, choose to have a portfolio of trades, which allows me to fine-tune my exposure, rather than bet on broad market moves.

 

[ChattiFX]

I trade a basket of pairs but I am doing it more to capture a broader type of movement to prove out and adapt my strategy...

I've done no work on actually proving out whether this is a good (profitable) idea long term (as I said, at the moment this is purely for research/analysis purposes). I've basically used my own logic to come up with the basket... now I am quite open to admit that my logic is maybe completely flawed and I'm sure somebody will point this out if it is!! 😕

I use all possible combinations of EUR, GBP, USD, JPY, AUD... which gives 10 pairs, my logic was that by using all possible combinations it gives the basket some balance, although maybe I'm wrong...??? Obviously there are times when pairs are fighting each other and kind of hedge/cancel each other out... and EUR & GBP are not ideal as against other pairs they do look to correlate, look at both currencies compared to USD & AUD over the last few weeks. Again I've done no long term analysis of this yet... sorry.

Saying that I have made twice as much on GBP/AUD than I have on EUR/AUD in June. My position size is based on ATR & Stop size so different price ranges shouldn't make that much of a difference.

Pretty much the bulk of my profit in June has come from JPY & AUD pairs with AUD/JPY giving me about 40% of my profit in itself.

I'm working my strategy towards breaking-even/small losses in a sideways market and as much profit in trending markets. So by using a basket my theory would be that days like yesterday I make good money on the two strongly trending currencies (AUD & JPY) against the other currencies. Today when they are both going against my defined trend I am stopped out of all trades involving AUD & JPY but making a little on GBP/USD which should cover my small losses for the day...

I hope all that makes sense, as I really haven't done enough research in to this yet to comment with the back up of facts, only my theory... which I'm sure will change when I get the time to do more analysis on it.

I'd also say it must have a lot to do with the time frame and strategy you are following... so what I am saying might (or might not) work for me but might have different results to others...

I was recommended some people to look up on the subject (by NVP) which I haven't done yet but intend to, so maybe have a look too.

"Steve hopgood , Dreamliner , Hanover and some of the other guys at FF"

Cheers,

CFX

 

[Martinghoul]

Indeed, there are all sorts of methodologies (of varying degree of sophistication) that allow you to formalize and quantify the approach described by CFX above. You can be reasonably rigorous about it, if you so desire (obviously, too much of that and you risk making the whole approach useless).

 

[aliasentric]

Well, you see that is the key point... "Most currency pairs are correlated in some way with other pairs". What makes you say that? Over what time horizon have you observed this to be true? Have you considered the logical implications of such a statement?

If you think long and hard about these things, you will see the light, I am sure...

And as to being consistently profitable, I mustn't grumble... I also, like the others here, choose to have a portfolio of trades, which allows me to fine-tune my exposure, rather than bet on broad market moves.

Of course I'm open to considering other views, but it has been my observation, as well as the general view of most forex traders that there is a correlation that is generally followed between pairs. I haven't researched all of the pairs, but there is a chart showing the relationship, and how it is calculated, if you do a google search on "currency correlation".

I might also add that it is not 100% accurate, and has varying level of consistency depending on which time frame, and which pairs you look at. And looking at price action, which is 99% of my trading method, it's easy to see similar or opposite patterns in the price correlation...

I think it's like anything else, everyone searches for an "edge" to give themselves an advantage to come out on the right side of trades. I found that knowing and trading 1 pair gives me an advantage, as I am familiar with the way it moves. But am interested in why some think multiple pairs traded at once gives them an advantage. I understand the diversification noted by $oro$ above, although that hasn't worked for me when I've tried it, so I went back to 1 pair.

 

[Martinghoul]

Of course I'm open to considering other views, but it has been my observation, as well as the general view of most forex traders that there is a correlation that is generally followed between pairs. I haven't researched all of the pairs, but there is a chart showing the relationship, and how it is calculated, if you do a google search on "currency correlation".

I might also add that it is not 100% accurate, and has varying level of consistency depending on which time frame, and which pairs you look at. And looking at price action, which is 99% of my trading method, it's easy to see similar or opposite patterns in the price correlation...

I think it's like anything else, everyone searches for an "edge" to give themselves an advantage to come out on the right side of trades. I found that knowing and trading 1 pair gives me an advantage, as I am familiar with the way it moves. But am interested in why some think multiple pairs traded at once gives them an advantage. I understand the diversification noted by $oro$ above, although that hasn't worked for me when I've tried it, so I went back to 1 pair.

Well, I have no beef with your approach... Horses for courses, innit?

All I was trying to say is that these "correlations" are actually much more complicated and deep phenomena. It's not enough, at least not for me, to say "Look, this chart shows an obvious relationship between these two exchange rates". I have to try and understand why the correlation is there, what common factor is driving the market and to what extent. Once I have done that, I can trade arnd my view on the common factors, as well as the idiosyncratic ones. For example, take smth like AUD and CAD. These are obviously correlated, because of a few distinct common features. But in order to trade these ccies, either separately or together, I need to understand the common drivers and how powerful their influences are at any given time.

 

[resistance]

Many people trade in multiple trading pairs . It is not a good practice for new traders with low deposits. Multiple trading uses more margin from your capital . You can not give attention to every trade properly. You need much experience of analyzing each pair for multiple trading.

 

[malaguti]

Many people trade in multiple trading pairs . It is not a good practice for new traders with low deposits. Multiple trading uses more margin from your capital . You can not give attention to every trade properly. You need much experience of analyzing each pair for multiple trading.

so you trade 1 instrument, period. Never take another position until you close your last one?

 

[aliasentric]

Okay, I after having gained more experience and settled in regards to my strategy, I now trade multiple currency pairs. For example, GBP/JPY, USD/JPY, GBP/NZD, CHF/JPY.

I've found that on longer time frames, i.e. 4 hour and daily work well for me. It's easier to give attention to multiple pairs on the higher time frames. I also like to spread my risk and increase profit potential, and it seems multiple pairs works well for this objective.

For example, if I see a set up on 4 or 5 pairs over the course of a few days and end up in 4 or 5 trades concurrently, chances are I won't be wrong with all of them. In fact, I believe there is a higher chance of being right with all of them, especially if some share the same currency, i.e. JPY for example. Since if the set-up looks good for 3 pairs for or against the JPY, it probably is a good indication JPY will move the same direction for/against all 3 pairs.

So, I continue to trade and learn...