Hi Guys
I was thinking, what if you trade on ten different pairs at the same time using a strategy that wins 60% of the time?
you should in theory win 6 out of 10 times every time you trade ten pairs at a time… Right??
Win-rates don’t really matter, Jason. [B]Expectancy[/B] is what matters.
You need to win more, collectively, from your winning trades than you lose, collectively, from your losing trades.
If you read some beginners’ trading textbooks (such as Van K. Tharp’s [I]Trade Your Way to Financial Freedom[/I] and Tushar S. Chande’s [I]Beyond Technical Analysis[/I], perhaps) you’ll see these established trading authors explaining in some detail (with examples) why systems with [U]lower[/U] win-rates tend, in practice, to be easier and better to derive profits from than systems with higher win-rates.
A system with a win-rate of 40% and a reward-to-risk ratio of 3:1 earns [I]three times as much profit[/I] as a system with a 60% win-rate and a reward-to-risk ratio of 1:1.
Also, be aware that there aren’t really “ten different pairs” in the way you’re probably thinking of them as being “different”, because forex pairs, in reality, are so closely correlated (positively or negatively) that trading ten pairs and collating their outcomes isn’t dealing with “ten unrelated events”, and isn’t spreading the risk as one might at first imagine. Typically, it’s mostly increasing workload, attention-demands and accident-potential [I]without[/I] enhancing profitability much at all. More information here: [I]Profitability and Systematic Trading[/I] by Michael Harris (Wiley, 2007).
Lexy is so right!!
Unless you traded exotics,
like peso, złoty, etc. then you
would end up doubling up on
risk exposure, because, as the
amazing Lexy says, the G10 currencies
are highly interconnected.
I didn’t consider the correlation between pairs.
Thank you for pointing that out.
But by being an optimist and in the hopes of developing a strategy that limits the amount of risk by not putting all your egg in one basket. I have to ask the question
“What if you could diversify your trades?”
“which currencies would you trade in, and would you have to find totally random (Correlating=0) pairs?”
“is it possible to create a system that works by the amount of trades you make at a time?”
I may be trying to reinvent the wheel and it may not be possible. But what if it is possible?
You can, if you want to. You can trade stocks, indices, bonds, options, commodities and other things, as well as forex. And many people do. But you can’t diversify so much [I]within forex[/I].
I don’t think there are any [U]totally[/U] uncorrelated pairs, really - not in any meaningful or helpful way for trading purposes, because if you do trade really obscure currencies, the markets will be thinner and the spreads and dealing costs [I]so much[/I] higher that you’ll perhaps be losing that way any advantages you might gain from attempted diversification? It’s not for me, anyway. (Others may disagree).
Either a system has a genuine, provable edge, or it doesn’t - but I don’t know if that answers you at all, because I don’t really quite understand what you’re asking, with this question. :8:
Hey Jason, Mike here.
You talking about what I’ve been up to. I trade a basket of trades. That’s my style. And if there’s edge that I’ve found in the market it’s this edge. Major pairs, and Comm pairs. They are definitely negatively correlated. (But I have found some particular correlations within those camps)
I have done some very extensive research on the subject. And have dated data for proof.
If your still interested, check out the thread here that I’ve belonged to for quite some time now. It’s called ‘COT report analysis, market sentiment’. In the last, oh, 20 or 30 pages of it you will see some of my data, strategy, etc.
Mike
P.S. --Post #3932 starts it.