How Many Pairs Should You Trade At A Time?
Here is a few guidelines on what to consider when you want to increase the amount of trades or positions you trade at a time.
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We have a question from Mike who asks whether we limit the amount of pairs we trade overall or just keep to what’s in focus for the week, Mike adds that he has been advised to rather limit the scope to begin with.
So, there isn’t really a limit to the amount of pairs we trade or the amount of different instruments for that matter, but there are a couple of guidelines that I can share that can help you narrow it down.
There are many different pairs and other instruments that you can trade, and as a general rule that I usually look at, is that I try not to have too many trades running at one time that all express the exact same view.
For example, if you think the Dollar is going down, unless you are deliberately basket trading, try not to have too many trades that express the same view, such as being long the EURUSD and being short the USDCHF for example at the same time. If there are solid reasons of course to trade the EUR and the CHF individually versus the Dollar then that makes sense, but always try to limit your exposure to the exact same view.
That means that not being long Oil and short the USDCAD at the same time, or not being long equities and being long the AUDJPY at the same time, unless of course you want to play that particular theme in a basket of various ways, so you reduce your risk in the oil trade and reduce your risk in USDCAD so that you are actually trading the same view of higher oil prices but you want to get different exposure on the trade and diversify the view that’s fine, but what you don’t want to do is take a full risk on both of those trading in line with the same overall thesis.
The other thing I would say on the amount of open trades, I think the advice you got to start with a smaller scope is a good option, there are many traders out there that will only focus on a small handful of instruments that they trade and they specialise in those, and that’s totally fine.
For us, we are global macro traders so we prefer to trade currencies and commodities and equities and sometimes bonds, even though I suck at trading bonds, but we trade all of them and try to find value in all of them, but if you are just starting out I think limiting your scope until you get to grips with handling various positions at the same time is a good idea.
You can always add in more as you feel more comfortable. And the last thing you want to do is try to have too many irons in the fire and you end up managing some of them incorrectly coz it’s just too much to keep track of.
Something that will also help is to try to take a more med-term or swing trading approach, that way you can have more time to react to changes in the market, where with day trading it can be very very daunting to try and manage multiple short-term positions at the same time and often times if you take your eye off the ball you can really get into trouble, so extending the time horizon can also help you to get used to managing more than one trade at a time.
So, I hope that helps Mike, any other questions just let us know.
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