Lets assume that currency X is FUNDAMENTALLY troubled and in a downtrend across the board,
and the currency pair Y/Z that is also in a downtrend. After a pullback, X/Y and X/Z lie both
on resistance, so I want to short X. According to the Y/Z correlation I should short X/Z since
Z is the strongest [U]BUT[/U] X/Z has a daily ATR of 80pips while X/Y 160pips! Here lies the dilemma!
Which one should I trade? Should I go with the more probable trade and short X/Z, or chose
the bigger mover and short X/Y instead??? Which one would produce more pips?
:33:
That’s impossible to say, since ATR is the [B]Average[/B] True Range … so there is no guarantee that currency X/Y will really move for 160 pips on any given day.
If the choice was mine, I’d still go for X/Y and its probably more pronounced movement, because a difference of 100% in average daily movement will not be equalized by currency Z currently being stronger than currency Y.
Have you thought about going for both pairs at half the position size each that you’d use for a single trade?
O.
Actually, I was more into doubling the size and going for X/Z… Any thoughts on that?
Why double the size?
Well, if it’s within your risk criteria, it’s ok.
What is your rationale to prefer X/Z over Y/Z?
O.
Well the rationale is hypothetical, but lets assume that, as I said, X/Y and X/Z lie on resistance and some bad news
about X come out! So that why I am looking to short X (and not Y for example). Since Z is stronger than Y
but X/Z moves 2 times slower than X/Y, I would assume that doubling the position on X/Z would bring approximately
the same amount of money (however with half the pip movement) but also with higher probability…
Right??? :33:
… and double risk, too, provided you don’t halve your S/L.
But like I said, if it’s within your normal risk parameters, it’s no problem.
O.
According to the daily ATR the previous swing high should be at half the distance (assuming both charts are almost the same)
so my s/l should be halved too… that’s basically the reason I doubled the position and still remain within my risk tolerance…
Ahhh, this question is too hypothetical anyway, I wish markets were just physics… :22:
Thanks for your replies Oliver!