How to trade effectively without being overwhelmed
Sooner or later, any trader faces a question: how many
currency pairs do I need to trade effectively, how many instruments do an
experienced and efficient trader use? And does the number of trading
instruments matter at all? Or could one earn a lot using just one favorite
Besides, traders, especially beginners, try to
determine what particular instrument or several instruments are the most
effective. According to InstaForex analysts, a big number of trading instruments used simultaneously is not a key
to success. Such factors as the status and reliability of a broker, trading
experience, self-reliance, as well as strategies and approaches to trading, in
general, are more significant.
Risk management is also considered a crucial factor.
The more currency pairs you use, the higher your risks are, since all your
instruments should be monitored using money management strategies.
Even with a standard risk of 5% per order, if you use
10-20 currency pairs at once, you greatly increase the risks. Few people trade
ten currency pairs simultaneously, as it takes too much time and energy.
It is necessary to understand that it is not the
number of pairs that makes a profit but the risk management, which is extremely
difficult if you trade a lot of pairs. But if you are an experienced trader who
can manage several pairs at the same time while being able to smooth out possible
losses, then you can trade many instruments at once.
One pair vs. many pairs
More than seven million InstaForex traders usually use
1-2 currency pairs to trade simultaneously. And this is understandable, because
operating a large number of instruments (over three) requires more analytics,
forecasting, and control over open positions. There is a popular myth: the more
trading instruments you use, the more you can earn. In fact, this is rarely the
If you associate effectiveness of your trading with a
variety of currency pairs, believing that the volatility of a particular pair
can bring you profit, then you should trade pairs one by one choosing the best
for you. You can trade safe-haven currency pairs for a week or two, then try
emerging market currencies for another few weeks, and after that switch to the
main classic pairs.
Thus, you can determine the most predictable
instruments. If you find a currency pairs correlation, such as USD/emerging
markets pairs, you can trade several assets simultaneously in one trend.
However, in this case, such pairs will behave almost synchronously which makes
it unnecessary to split the deposit into instruments instead of increasing the
amount of the transaction within one single pair. The result, both positive and
negative, will be the same.
You need to understand that you can earn up to 100% of
the deposit every day just on the price movement in a narrow channel within
30-50 points, and you will not get even 5% profit on a good trend of 200-300 points
by splitting your deposit into a dozen pairs. The fact is that an accurate
calculation of risk per transaction, based on the features of your trading
strategy, allows you to make a maximum profit using just one or two pairs.
For example, you have chosen a specific instrument and
a trading strategy. After calculating maximum possible losses, you have
determined a safe lot for trading. Further, depending on the accuracy of the
system, you will still earn the same money as when using several pairs, since
even with 5% money management you would have to divide it by the number of
And if you trade five currencies, then, according to
the rules, you should risk 1% of the deposit in one transaction. Let’s now
think, does it make sense to trade several pairs at once, analyze each of them
separately and monitor open orders 24/7? Trading one currency pair will bring
at least the same profit but will require much less time and nerves.
And you will have to divide the risk by the total
number of trading instruments in any case if you want to keep the deposit
during a negative period in the market. And yet questions remain: what pairs
are the best to use? Are there the best instruments at all, or an experienced
currency trader does not divide trading instruments into good and bad,
effective and inefficient, understandable and unpredictable?
One pair secret
There is no obvious difference between trading
instruments (currency pairs). You can get 50% from a trade even on a 40-50
point movement with a stop order of 5-10 points. The question of the percentage
coefficient of profit and loss, again, is a question of money management.
If there is a 5% risk and your stop loss is 5 points,
and the goal is 50 points, then simple calculations guarantee income from an
order closed in profit equal to 50% of the entire deposit with the same
And if your stop order is 100 points, then it does not
matter how much you earned from the transaction, 100, 200 or 300 points, the
yield per transaction will not exceed 15-30% of the deposit. And here we have
the same conclusion: the effectiveness of your trading depends heavily on the
trading strategy, risk management, and current market volatility. The number of
trading instruments and the type of currency pair are not so important.
You can pick a particular currency pair only by your
personal preferences, a sense of understanding the instrument and its behavior
in a given market situation, but this only comes with experience and after long
work with one or another pair. Some pairs are good for position trading and
waiting for favorable trend movements, while others are great for short-term
operations or scalping.
Also, your trading system can be designed for a
certain style and nature of the currency. For example, main currencies are the
best for copying trades of a major player. It is up to you to decide what particular
pair and strategy to choose, of course, this will in no way affect the
profitability of your work.
Properly calculate your trading risks and test the
algorithms for predicting the exchange rate; do not think that quantity is the
goal. Make a high-quality analysis of one or two currency pairs. This is how
you will eventually get insight and efficiency.
This article was submitted by Instaforex.