Hi, I have been trading for well over a year now and my price action strategy is starting to work. My only problem at the moment is correlating pair’s. As part of my strategy, I don’t need to enter 100 trades per month etc. However, if 2 or 3 pairs are correlating and they all have good setups, how would you decide which one is the strongest pair or which one to trade?
I don’t like the idea of splitting the risk (spread cost, swaps etc) I would rather trade the strongest and manage that trade.
I often come across this problem as I am long-term trend-following off the daily charts. Correlating pairs obviously tend to trend in the same direction at the same time.
Therefore I firstly only enter trades via pre-set orders - price has to pass a given point in my favour before the position opens. So if I am interested in getting long in two correlated pairs, both will open but I will quickly close the one that lags behind. I will also close the one that makes less progress in the first two days, relative to its risk. while I have two correlating positions open, I will hold off pyramiding either until I have eliminated one of these.
Thanks for the reply Tommer. In the last few months i have started to reduce the number of trades I open per month and that when I realised how much of a problem this to my progress.
I havent heard of that first to move approach. I will backtest it, thanks.
Does the cost of the spread or swap play a part in your decision making or anything else I may have missed?
I don’t find spread is an issue with long-term positions, but I tend to avoid too many AUD or NZD positions as these have higher margin requirements and if I take too many of these that leaves me unable to take some other promising positions.
A currency correlation in forex is a positive or negative relationship between two separate currency pairs . A positive correlation means that two currency pairs move in tandem, and a negative correlation means that they move in opposite directions.
oh, I did not even know that
the only type of correlation i currently use is the DXY with usd pairs and foreign currency