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specgoldbug

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05/08/17

13:48

Post #: 26311536
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Originally posted by Martin Gifford ↑

While EUR/USD, GBP/USD, EUR/JPY are the best when considered individually, there is the problem of correlation. For example, if you are long both EUR/USD and EUR/JPY and there's bad news in Europe, then your loss will be doubled. And if you are long EUR/USD and GBP/USD, and there's good news in USA, then your loss will be doubled. And vice versa. Another kind of correlation is resource currencies like AUD and CAD vs tech currencies like JPY. For example, if you are long AUD and CAD vs JPY, then the price of oil plummets, your loss will be double. So maybe it's best to find pairs that are not correlated with each other? For example, you might focus on:

EUR/USD
AUD/JPY

Another approach is to have only one trade going at a time, then correlation is irrelevant. Also, tight stops would make correlation unimportant.

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Nice point on correlations between pairs
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