Correlations and Number of Trades taken

[wrkirby68]

Newbie here... just a quick question.
If I notice two or more great setup involving a single currency, should I take one trade or all of them.
ie...

GBP/USD
EUR/USD
NZD/USD
CAD/USD

If the USD is rising in value, and the above 4 currency are falling and I go short, risk 2% per trade, should I go short on all of them or just stick to one trade. Currently, I am making sure all my trades and their currency pair is unique, for instance I have two trades open, nzd/cad and eur/usd, am I doing it right this way or should I trades any pair that have a great setup? Your advice is greatly appreciated.

Thank you.

 

[TheForexGuy]

Hey man I think deep down you really know the answer to this question. Taking four trades at once with 2% risk each is almost exposing 10% of your entire capital. That's extremely high risk, you must always think in terms of worst case scenario and you don't want to put yourself in a situation where you have the potential to lose that much.

It's really good practice to only have one trade open at a time that has risk exposure to your account.

However if you wanted to take all four trades, there is a way around it. What you do is split your normal 2% risk into the 4 signals, so you would risk 0.5% on each trade setup. That way the worst case scenario is a 2% loss and you had the satisfaction of taking all the trades.

In these situations I just pick the best trade out of them all and just trade that one alone.

Regards

 

[wrkirby68]

That was a great reply, thank you for that, it was something I needed to hear.

Thank you.

 

[thesoldier]

Yep, try to pick only the best trades.


There is no sense to open trades that all are tied to USD somehow. Something happens to USD and you are going to south or north. That would be more like guessing.

 

[TheForexGuy]

One trick is to split your normal risk up into all the trades you want to take.

If you normally risk 2% or $1000 per trade

Then you can can take all of the trades but only risk 0.5% or $250 in each trade. That way you are covered for that worse case scenario of them all being stopped out, you will still only lose your normal allocated amount if they do.

The Idea of diversifying like this is there is more of a chance one of the trades will hit target. If you took 4 diversified trades at once, you will need to aim for minimum of 1:4 risk return, that way only 1 trade has to hit target to hit the break even mark.