I'm swing-trading currencies, being in a trade for 2-5 days usually.
I like to get in trending markets when they pullback.
I'd like to risk 1% per trade.
Now very often I get interested in not only one but quite a few markets because they're highly correlated like AUD/USD, NZD/USD, GBP/USD, EUR/USD might all do a pullback on the same day.
Or AUD/NZD, AUD/CAD, AUD/JPY, AUD/USD last week...they're all correlated to AUD.
In the past I liked to pick the one I liked best, place my limit-order in that market and forget about the rest.
It has worked out okay so far but what happens often is:
- The market I've chose is the one that performs worst...
- My limit order doesn't get filled in the chosen market, but would have in one of the others...they all run without me now...
So in other words I think it might be more logical to try to get in all of those markets...since trying to pick "the best" usually is a stupid idea...also if you think about it, it's a bit too much prediction...
But of course if I'd place orders in all "interesting markets", I'd have to deal with correlations. Highly correlated markets, medium correlated markets etc...
Now I don't have much experience in this, how do you handle it?
Best thing that came to my mind is:
Let's say I want to risk 1% on the trade, meaning I have to split up that risk if I trade more but highly correlated markets. I spot 3 of those markets and place my orders
- Fit my position size to risk 1% in every market, since I don't know if all 3 orders will get filled.
- When the first order gets filled, I modify the not yet filled 2 orders in the other markets cutting the position size down to 50% (0.5% risk).
- If one of those 2 orders get actually filled, I close 1/2 of the first position.
- If the third order get's filled, I'm okay because 1.5% risk instead of 1% seems okay to having split of the risk a little by being in three markets.
How do you handle this? Any better ideas?