FX Daytrading capital allocation advice

Discussion in 'Forex' started by alex.samant, Jan 3, 2008.

  1. Hey.

    Thought I should mention this.

    Trading 8 pairs or more intraday with a good setup and trade management rules is fine, BUT...

    ...The more the opportunities, the larger the risk and allocating more than 3-5% (even this amount is large) when trading more than 8 pairs is an attempt to commit suicide.

    Why? Just take the simple situation in which ALL of your pairs have two losers one after the other: you will have 16 losses in a row and with a 5% risk on each trade you are down 80%.


  2. and thinking that this situation will never happen to you is MADNESS :)
  3. Trading more than 3 or 4 pairs can cause too much distraction, IMHO.
  4. well, depends on what strategy you use.

    for instance i trade the central pivot point depending on a day-to-day basis, so there can be days without any trade at all, i even had weeks without a trade. i'm picky :)
  5. You should also consider correlation between the currency pairs. Not sure which 8 you are trading, but in many cases, correlation is high resulting in effective doubling of positions (e.g. short USDCHF, long EURUSD)
  6. pipman7


    Correlation can work well, but when the "SMART MONEY" decides to stretch the pairs way out of correlation, its the same when the carry trades unwind.I have done it and I have been burnt. We have had correlation indicators and Ea's to get in the probable spot, avoiding big drawdowns and still got burnt. Now, we developed a system wheras we make between 0.1-1.5% a day only using about 3% margin. We have only incurred only up to a 3% drawdown.It has taken a lot of work, but the head of our research and development team made it happen. Correlation trading can go scratch.
  7. By the way, even correlarion between USDCHF and EURUSD can strongly fluctuate:
  8. Well, here my opinion about correlation.

    You will never know when they are in sync and when they are not. Correlation also varies across different timeframes and in some cases it even goes 180 degrees from daily to 5 minutes.

    i think that judging the level of supply or demand for each currency pair in particular and picking the best looking patterns guarantees you that participation will be there, so will volume and so, price will head in the right direction with a higher degree of probability.

    furthermore, if you know how to squeeze everything you can when it works and not lose your shirt when it doesn't, you don't have to focus on correlation.

    i honeslty think one needs to focus on the issues all markets have and those are supply and demand and when things are not clear to you, stay out. that is why i am not the advocate of automated trading. but that's only my take on things.