Currency baskets

#1

This is a rarely seen style of trading, even many experienced traders won’t have tried it.

The standard approach involves identifying a strong base currency and taking parallel positions in all the available pairs on the same base. Not intra-day. So if your analysis shows GBP as strong, you take parallel long positions in all the important GBP-based pairs plus a short in EUR/GBP.

The individual positions must be small as you want as many parallel positions open as possible. The stop-loss is a basket SL, so you close the entire basket of the aggregated loss reaches a certain % of account capital. Likewise with the TP.

On the upside, if your currency strength analysis is right you are going to win big. Identifying a strong currency is a lot easier and more objective than chart TA. With a basket of GBP longs you avoid the risk of selecting the wrong GBP-based pair to buy big into - its going to be annoying and damaging to buy GBP/CHF when you find a week later you should have bought GBP/JPY.

On the downside, if GBP turns suddenly bearish after some ghastly news, you’re going to take the aggregated loss. Another reason for very small positions. But barring well-flagged political and central bank events, such incidents will be rare: it would be very rare for GBP to rotate from strongest base to weakest base in 24 hours.

There are various permutations to this basic approach which I’m trialling and exploring.

Anyone used this style with any great success?

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#2

Hey, tommor

I have been trading a basket of (3) fairly strong Negatively correlated pairs and (3) Positively correlated pairs so 12 pairs in all…
so eg, say in negative pairs (01) I will go long on 1 with 20 pip sl and long on other 20 pip sl both with 60 pip tp…

so 12 Trades open usually if timed right and over past 3 months got +70% ROI

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#3

Sounds like text-book pair trading and your ROI is fabulous.

#4

Its also possible to trade baskets using momentum. This is simply buying the fastest rising pairs and shorting the fastest falling pairs, with a single entry time for all. Again, there is no detailed TA of the charts, you just select the measure of momentum and take the pairs it highlights. And similarly the SL and TP are aggregated, not individual to each position.

I’m playing with this at the moment. In principle it should simply be another way to identify the strongest and weakest currencies.

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#5

Timing has to be an issue with basket trading.

If trading long-term there’s a handy quiet period after the NY close when you can review. Its very possible to generate a new basket every evening and run each separately. But there are going to be almost immediate overlaps - if GBP was good to buy yesterday on strength relative to other currencies or momentum, the you got all the GBP longs open. So tonight, do you add another basket of GBP longs or move to buy the second-strongest currency? And what about tomorrow? - do you really want to end up buying the third-strongest currency because you’re already long GBP and NZD all over the shop?

A pragmatic approach would be to open the initial basket at a set time and either run it until the SL or TP is hit, or run it until a pre-set time. So you could run the basket from Monday night to Thursday night. This eliminates holding over the weekend and avoid exposure to Monday’s often ambiguous price action and Friday’s inaction.

#6

sounds good. but u d have to be ok with the drawdown as pound pairs tend to move quite a bit when there s increased volatility. also this brexit crap might have a certain influence over ur trades, atleast untill an outcome will be reached. depending on how u determine the strenght, could be quite an interesting way to trade.

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#7

Yes, position sizing is going to be far more important than number of pips per chart or s/r levels per chart. But that’s also the inherent point of the basket.

#8

This week I ran a large basket of 15 pairs which ended with a nice result. These were at minimum permitted size on my account but still made a profit of just over 1% of account capital.

The trades comprised GBP-based and NZD-based longs, plus JPY-counter longs. As of last weekend GBP was scoring 7-0 on my strong/weak score, NZD 6-1, and JPY 0-7 (just check the 50EMA slope directions for strong/weak).

I picked up an error in opening the trades when I accidentally shorted GNP/NZD when I should have skipped this one. Otherwise, all trades were opened after the NY close Monday night and all closed about London lunch-time Thursday afternoon. Worst drawdown seen was about 0.4%.

Expecting to do much the same thing next week - GBP currently 7-0, NZD 6-1, JPY 0-7. Will increase positions sizes a little.

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#9

Im getting into basket trading heavy… I got tired of using MT4 and its limitations, wrote an App from Scratch to trade combos and baskets. Anyone else still trading in baskets out there?

#10

i used to know of an EA that worked like this but could not handle big moves how does your trading manage moves like GBPUSD last thursday

#11

Its doesnt trade the EURUSD and GBPUSD much. Does better with the crosses. I wish I could send a screen shot of the app.

#12

I am trading in baskets. I think I am comfortable in trading USD pairs only- mostly EURUSD. I feel others don’t work for me.

#13

Its a rational approach, trade the strongest currency’s pairs (or the weakest in the USD case).

But I almost never get a good trend in EUR/USD. It reverses every 30 seconds. It does nothing for weeks and weeks at a time. There are better match-ups for USD.

#14

I don’t feel confident enough whenever I think of basket trading. I don’t want to take such heavy risks.

#15

I can understand what you are trying to say. But it’s not risky. You just need proper knowledge and experience to try basket trading. Try trading through FXTM or Turnkeyforex and see if they work for you. Saying this because of their simpler interface. If you still feel that you’re not confident about this, you can research a bit about it. Once you’ll know how this works, you are all set to go and gradually you’ll gain confidence too.

#16

Please explain the “heavy” risk.

As I see it described, the trades are sized appropriately, when the drawdown becomes the set value, exit all the positions.

For example, the basket trades are opened, perhaps 7 positions vs the JPY, the market moves against, the drawdown hits 2%, exit all positions.

Now, if you had normal TA trades, with various pairs, similar situation, maybe 4 positions open, bad luck, all the wrong way, each loss is 0.5%, total 2%.

I don’t see where the “heavy” part is; 2% loss is always 2% loss.

I think your problem is more do with your account size, you probably can’t open anything larger than 0.01 lots and a 10 pips move becomes too “heavy” for you.

Am I right? Prove me wrong…

#17

Yall be shilling Turnkeyforex or whatever broker you work for in here. Think we don’t notice? :roll_eyes:

#18

I think these two are “talking to each other” but it’s just a ploy to mention whichever broker they’re working for. I checked out the other user’s account, pretty lame. I’ll be REAL curious to see if @layernori actually responds to your questions.

#19

It’s the second time that I came across about this method this week. I’ve been forward testing an EA for two weeks now and yesterday somebody told me that the method it uses is a basket. To share what I have experience, the EA has an individual SL on each open trade while having a basket SL as well. It works well for 9th days now.

#20

Great week for basket trading. Finished writing my Windows console, connected to backend of 2 brokers. 6500 lines of code… Im tried but making progress.