One of the benefits of trading more than one pair at a time is, of course, that you have a greater potential profit ceiling. However, it isn’t always good for you; here’s a breakdown before you start:
Pros:
- More Opportunities: Forex is 24/5! The minute one currency pair goes to bed for the day, the next is waking up ready to seize the day. You’re right there in the mix to catch the next big move.
- Spreading of Risk: As long as your currencies aren’t related, if there’s some huge news event that sends the market into freefall, all hope isn’t lost. Your portfolio won’t collapse on itself because it has multiple eggs!
- Hedging: Think your correlated trade’s going south and you are scared of the outcome? Uncorrelated currencies will save you in these scenarios by providing some cover against a drastic change in price.
- Rapid Learning Curve: When you trade multiple currency pairs, you will begin to learn each pair’s individual trading characteristics, patterns, structure, and style as quickly as possible. It is the fastest way you will get to know the market!
Cons:
- Information Overload: Trading numerous currencies is akin to drinking water through a hose. Analysis paralysis sets in where your brain has too much information, and you end up not making a trade or making an impulsive one.
- Correlation Trap: Many currencies are somehow related. You’re just trading double on USD and long on EUR USD and going short on GBP USD; you’re essentially going long on USD in both trades.
- Mounting Costs: Every trade has a cost. You pay spreads, commissions, financing, and overnight fees that quickly pile up, drastically eating away from your earnings.
- Capital Diversion: The risk you run with several trading accounts open on multiple currency pairs is that your capital is distributed over them. This could limit your ability to open a full-throttle best-conviction trade in another market.
- Low Quality Trades: The higher number of trades you execute means less time can be invested into analysing and verifying if it is a conviction trade that will make your account grow, leading to a higher number of non-conviction or speculative trades.
Here Are 4 Rules for Multi-Pair Trading:
- Live correlation matrix is your best buddy: Keep a keen eye on it every day! Avoid putting long orders on strongly correlated currencies. Except for making a counter- correlated hedge, please stay clear of going long and short on two related pairs.
- Swing Trading 4EVA: Stare down at the short time frames; it’s an absolute nightmare. Get comfortable with the 4H/ Daily time charts to give your brain time to think clearly and avoid emotional traders’ fatigue, a.k.a. burnout!
- Use Price alerts for your benefit: Forget about watching the screens all day. Set price alerts at levels that you think are crucial or are institutional levels. Your Trading Station software will ping when the price touches the levels; until then, take a break.
- Keep it to yourself (your trades): not more than 5% of your capital per trade. And if you have 3 trades live at any given moment, then it should be below 1.67 % per trade!
- More is Less: What I mean here is don’t go for dozens of currency pairs chasing every possible opportunity; it will dilute your win rate down to a very small percentage. I will prefer quality trades over the number of trades; a lower win rate but of higher conviction is still better.
In A Nutshell:
Multi-pair Forex trading can indeed be rewarding, but it comes with many considerations that must be factored in. When implemented with a sense of caution, strategic execution, firm command over correlated currencies, controlled operational costs, and, of course, targeting the most opportune and high-probability trading setups, it is a concept for just about everyone. I’m here to provide you with information, with the intent to guide you in succeeding by building a disciplined approach within the FOREX market. I want to make my experiences readily accessible in a simple-to-digest format to those willing to invest time and effort in learning.