I am wondering if it is good money management if you have more than one position at a time.
For example: you enter a high probability EUR/USD short but it ends up consolidating for a long time and hitting neither your stop or t/p. Later in the day/week/month/etc, you find a good trade in GBP/JPY. Your first position hasn’t been taken out yet, though.
What should I do in this scenario?
Wait until my first position is taken out and potentially miss the second trade?
Close out my first position manually?
Or, should I take both positions?
Nothing wrong with having mutliple positions open, as long as you have enough margin to keep them open.
In your scenario each trade should be considered on it’s own merit. One shouldn’t be not taken or taken out because you’d like to trade the second or not. If both look good take both, as long as you have enough margin for two open trades.
If you really want the second trade and don’t have enough margin at your usual lot level, the lower your lot level and risk level until both trades can be susstained.
Generally speaking I usually tell new traders to stick to one position at a time, but that’s more for those deal in short-term (day/swing) timeframes rather than intermediate to longer-term ones. Multiple positions are fine, so long as you don’t get overly exposed to any one particular currency or highly correlated set of them. For example, being long GBP/USD and short USD/JPY at the same time means a double dose of USD shorts. Also, being long EUR/USD and long CHF/JPY is a lot like being double long the EUR given how closely the CHF tracks with it.
I always follow your post with interest rhodytrader but must confess on this occasion to be confused?
I totally agree with the main point you have raised… USD/CHF and EUR/USD are a mirror pair. But CHF/JPY excepting the odd spike has been trading sideways in the 86.89 - 89.46 area since around July. Whilst EUR/USD over the same peroid has moved in an arc from 1.42 - 1.51 and back down to where it started.
First of all, be cautious about trying to determine correlative relationships from charts, and for doing so outside the timeframe you trade. Both can be highly misleading.
Second, my point is that the drivers which tend to move EUR also tend to move CHF in a similar fashion - not always, of course, but enough that one needs to be wary. If you have a long EUR trade on, coupled with a long CHF position then you are exposed to the same kinds of drivers in both. It’s not quite the same as having two USD longs, but at times is very close to being like that.
You don’t want to take a double-sized loss because one news item, for example, impacted both your positions is what I’m saying.
The smart way to trade is to have multiple positions open simultaneously to offset the risk. You can bet the major market traders like banks and hedge funds have multiple positions open simultaneously. An example is when eur/usd is rising, usd/chf is falling most of the time. You can obtain a market neutral position by being short both pairs or long both pairs. At some point in time, you should be able to exit both positions simultaneously for a net gain. You will want to study the “market neutral” concept.
If you want to truly “offset the risk” and be “market neutral” you could take 2 equal and opposite positions in the same currency. That way whatever you loose in one you’ll make up in the other.
Of course, the same results can be accomplished by simply not trading.
The point of diversifying is to smooth out your equity curve, not lessen risk. If you want to lessen risk, you can trade smaller lots.
Traders who haven’t done the math like to invent concepts and words and pretend that what they’re doing isn’t risky.
Interesting… I often trade the mirror pair but not in this way. Just one question. How do you know your going to make gains and not losses or at least how do you know when trading this way youve at least got the odds on your side? Sounds risky to me.
Diversification (finance)
From Wikipedia, the free encyclopedia
Diversification in finance is a [B]risk [/B]management technique, related to hedging, that mixes a wide variety of investments within a portfolio. It is the spreading out of investments to reduce [B]risks[/B]. [1]Because the fluctuations of a single security have less impact on a diverse portfolio, diversification minimizes the risk from any one investment.
It is obvious when someone has not done their homework. They usually wind up putting their foot in their mouth. They only make it worse when they make comments about others.
Trick question? In trading, one never knows what the outcome is going to be when they enter a trade. Nor do I know when the odds are on my side. Most importantly, I don’t care. You have read Mark Douglas, right? Then you know you do not need to know what the outcome of the next trade is going to be.
It’s like a see-saw, if the balance is too far one way, you add weight to the other side to bring it back into balance. I am sure with your vast trading experience, wisdom and knowledge, you have encountered this.
What would you do if you were long eurusd on Dec 29 and it started to drop?
a) You could exit and take a loss.
b) You could add a usdchf long position to create a balance.
c) You could do nothing but watch.
As you watch the market unfold, you can adjust your positions to get them close to net zero or market neutral. If the market moves in your favor and you are net positive, you can
close all positions and bank the profit
close the loser and let the winner run
close the winner and let the loser recover
Finally, trading itself is risky, as you well know. This way allows me to reduce or control the exposure (risk) to market swings. Not trading this way is much riskier, IMHO.
My question to you is “how do you trade the mirror pair?”
Never considered this as shrewd but I’ll accept the compliment. Going from flat into a position, one usually picks the most promising for entry. When the pick does not pan out, is when it is time to put on the other position and start to balance the see-saw.
Will you please answer my “how do you trade the mirror pair?” question?
You do your homework by looking stuff up on wikipedia? :rolleyes:
You reduce risk by reducing position size, not by taking on more risk across various instruments. So, instead of opening a single position with $500 at risk, you can open two with $250.
Diversification [B]implies[/B] this reduction of position size. It does not lessen the risk of any particular position. It also doesn’t “offset” anything, and does not render you “market neutral”.
These terms wrongly imply that one can trade without taking risks.
diversification
The acquisition of a group of assets in which returns on the assets are not directly related over time. An investor seeking diversification for a securities portfolio would purchase securities of firms that are not similarly affected by the same variables. For example, an investor would not want to combine large investment positions in airlines, trucking, and automobile manufacturing because each industry is significantly affected by oil prices and interest rates. Proper investment diversification, requiring a sufficient number of different assets, is intended to [B]reduce the risk[/B] inherent in particular securities.
Can you please provide the source for “The point of diversifying is to smooth out your equity curve, not lessen risk”? I can’t seem to find any source for diversifying that talks about smoothing the equity curve.
has been trading sideways in the 86.89 - 89.46 area since around July. Whilst EUR/USD over the same peroid has moved in an arc from 1.42 - 1.51 and back down to where it started. 
