And if so, how many, right?
Well, our first suggestion; Never keep all your eggs in one basket.
Why? Because if the basket falls to the ground, all of your eggs will shatter leaving you with nothing. In the same way, we as traders should look to diversify our trades, across both strategies and markets, instead of putting all of our money in one single place. Diversification, if you will.
Now, doing this is proven and it’s increased the chances of survival for many, even during highly volatile market conditions. It’s the reason property investors don’t just own one single property, or why a golf player doesn’t have just one golf club. It’s all about spreading your risk, and opening yourself up to opportunity.
The concept that we want to introduce today is ‘strategy diversification’ and the concept is undoubtedly a key element in managing risk in the financial markets, whether you’re trading stocks, foreign exchange markets, commodities markets, whatever instrument you choose.
Now, you may ask, why do I need to diversify my risk and the strategies I trade? Does that mean I’m going to lose in one market and win in one market, thus making my gains small and my progress slow?
Well, the question is a valid one and an important one. It shows that you understand the big picture, and we’ll answer the question together by introducing another concept called ‘risk diversification’. Risk diversification allows us traders to mitigate the risk of huge losses in case the market suddenly moves against us. To dive deeper, we need to consider combining markets to aid diversity or currency correlation considerations, time-zones issues, timeframe suggestions and which timeframe fits traders best, ok.
So, when deciding which markets to trade, we need to understand the concept of market-correlation. The topic is rather complex but it is very important to understand because this will distinguish you ahead of the majority of other traders out there who either don’t know this, or who ignore it.
So let’s list some examples of market-combinations for you to study.
Firstly, Crude Oil and Canadian Dollar pairs – The price of oil and the Canadian dollar are negatively correlated. This means that when oil prices rises, typically the price of the Dollar-Canadian Dollar will fall.
Secondly, Gold and the Australian Dollar with the United States dollar currency pair. The price of Gold and the Australian Dollar are positively correlated. Australia has a big influence in gold mining hence when the price of gold rises, the Australian Dollar versus the United States dollar will also rise.
And thirdly, the Japanese Yen and the United States stock market. Japan is known to be a country with very low interest rates; Hence it’s the most desired currency for borrowing. Traders generally will borrow in Japanese Yen to take advantage of the low interest rate, convert the Japanese Yen borrowings into US dollars and then invest in the stock market. As such, there is a positive correlation between the United States Dollar with the Japanese Yen, alongside US indexes such as the S&P 500 index.
And just as a side-note, we’ve added a reference here, this being the Blackwell Global research piece, titled ‘Risk Diversification In Forex’: https://blackwellglobal.com/risk-diversification-in-forex/
Next, let’s discuss time-zones. As we’re all aware, the forex market is a 24-hour market, and there are 3 important sessions during the day, those being the Asian session, the London session and the New York session. For traders in Asia such as in Singapore, Tokyo, Hong Kong and Australia, the currencies in focus would likely be the AUD/JPY, USD/SGD, USD/JPY, NZD/USD and NZD/JPY.
By applying the currency correlation concept above, traders in this part of the world can choose to trade during their time zone and still take advantage of market volatility during the Asian sessions. In term of applying our own WBTrading strategies in Asia, traders can consider applying the Price Reversion strategy to the Australian Stock Index as one example of where this edge performs incredibly well and produces sizeable, frequent profits. And for those who are already clients, you can find this data inside the ‘Price Reversion’ segment of the course-contents inside your account.
At this stage, our content writer Azri wanted to share his favourite strategy, the ‘Higher-Timeframe Bias Bar’ strategy, which can also be used during the Asian session. As a trader based in Australia, Azri’s favourite currency pair to trade is the AUD/JPY and the NZD/USD. He focuses on these currencies as it provides him with exposure to 4 major currencies which are the Australian Dollar, the Japanese Yen, the New Zealand dollar, and of course the mighty United States Dollar. Having positions in both currencies helps with the currency correlation as well.
Next, let’s discuss timeframe suggestions and which may suit a trader best.
Many traders, including Azri and myself too, have a busy life. We all do, right. And Azri is also happy to share that he’s just welcomed a newly born baby boy in to his family as well, which was great to hear. He’s Azri’s third child, along with an 8-year-old boy and a 4-year-old daughter. As you can imagine, life can certainly be hectic for him!
Now, he did mention earlier that his favourite strategy of the four key strategies that we trade here at WBTrading is the ‘Higher-Timeframe Bias Bar’ strategy, and because of how easy to trade and how hands-off this edge is to trade, requiring just minutes per-day, this strategy works well for him in his busy everyday life. He just has to check the charts every 4 hours, due to using a four-hour timeframe, and he also focuses on just two currency pairs.
This solves the time-zone issue and the currency-correlation issue and also the having a busy life issue, too. All in one strategy, every problem is solved. And since we’re on this topic, I’d like to talk briefly about the concept of ’less is more’. See, many traders out there think that in order for you to make money as a trader, you have to open lots of positions, on many markets, through each trading day, and you have to make hundreds of trades a month, and so on.
For Azri, it’s all about quality over quantity. Now, for those who are clients of ours, we all have two short-term intraday strategies and two longer-term swing-trade strategies at our disposal, and this is more than enough for us to be consistently profitable traders, as we all are. The key is, as I mention continuously, letting the probabilities play out, letting edge play out. And in Azri’s experience of using our WBTrading strategies, along with being disciplined in his risk management, the results always come.
If you think about it, every time we lose, we lose just -1R and when we make a profit, we make many times this. Sometimes well into the double-digits. And in Azri’s case, via the Bias Bar strategy, when he is right he makes +3R which is the target he likes to use.
Since January 2021 to date, he has grown his account to +15R by just doing the exact same thing every day. Every time, he just places a trade, and he considers the golden rules; One, he risks no more than 1% of his capital, and two, he takes profit at +3R via the Bias Bar strategy, and checks his charts every 4 hours only, just for a minute or two. In essence, his trading day is just minutes in length, and he’s profitable continuously. Let me ask, how many minutes or hours do you trade every day?
If it’s longer than a single hour, in many cases, you’re actually doing something wrong!
Now, for people busier than Azri, we have good news for you, too. The daily time-frame can also be used to trade the ‘Higher-Timeframe Bias Bar’ strategy. Granted, you may not be in an open-position all of the time, but you do have the luxury of having a larger stop-loss allowing you to weather short-term fluctuations in prices.
And as an added resource, participation in our ‘Mechanical Alert’ group, which is open for clients-only, can be useful too, as our trader who runs this does all of the work for us in finding trades, making us aware of the orders he’s placing, and so on. All we need to do is literally copy his trades all day each day. Again though, this is not available publicly, it’s simply an add-on for existing clients. Azri also mentions that he’s been very impressed with the trader’s performance.
Now, before we end, Azri wanted to address a trading consideration for any America-based traders. This being, that the Session Momentum strategy can be utilised with the S&P 500 index with favourable results. Again, we’ve added the relevant data to the course portal for you to illustrate this.
As for our Price Reversion strategy, again, the ASX index is also suitable for America-based traders as the reference time is using Sydney’s timezone. So, you see, for America-based traders they can trade in the morning using perhaps the S&P 500 index, they can then go to work, spend time with their families and then in the evening they can trade the ASX index, too. And in between of course, they can check for Bias Bar trades via United States dollar-based currencies, meaning very minimal screen-time, very profitable results long-term, with very little stress on top.
It doesn’t get much better.
So, what to do next; Make sure that you aren’t trading correlated markets. It’s a big no-no. Make sure you’re trading with edge, and if you aren’t, we can help. Head over to our website, and you’ll find our strategies there waiting.
Anyway, we hope that helps, we hope that’s added value for you, and from me and the team here at WBTrading, trade with edge, with consistency and have a great rest of the week.
– To your success.