Today I learned that currency correlations can have a big effect on trading.
Apparently the GBP/USD and USD/JPY pairs are negatively correlated.
I had 1 open position on the GBP/USD and another open position on USD/JPY. The RR for both trades was about 1:2.
So the US retail sales figure came out and it was bad for the US. Both pairs had a spike in movement. The Pound trade stopped out at 1R and the Yen trade hit the limit at 2R. So luckily I came out ahead.
So I guess I just had an unexpected lesson in currency hedging and the power of currency correlation.
I suppose hedging is useful for managing risk but it also means that the rewards are also lesser. 1R profit isn’t bad though, if the RR match up for both pairs that you trade.
Anyone else use this method to trade on occasion?
Cheers
Haz