Forex pairs correlation dubai
But, when it comes to trading, most traders see each trade independently, and that can be dangerous. You enter a buy. Do you take it, or not?
Of course, the time frame you are trading must be considered. But, if your first trade is still exposed you have not cleared your stop loss into profit , then you still have risk at play. Now here's were correlation comes into play. If the Aussie is highly correlated to the Euro, that means it will essentially be making the same move. You say, " Great, twice the profit ".
Yes, if the trades are successful. It could mean twice the loss, too! Why enter a second trade of the exact same move? That's not diversification of risk at all. If you feel so inclined, and the currencies are highly correlated, maybe it would be easier to add to the existing position of your Euro trade. After all, then you only have to track one chart, one currency pair, etc.
Or better yet, let the risk you have in that Euro trade play itself out. Successful traders know they don't have to take every trade, and there will always be "another" trade.
FOMO " Fear Of Missing Out " is the psychological driver of our uncomfortableness in thinking we are missing a trade, and it's one those emotional head-game things that must be overcome in order to be a successful trader In addition to risk doubling when trading two highly correlated pairs either positive and in lock step, or negative and mirror image , there is also the time management consideration.
If I have some sort of alert mechanism from a technical trading perspective , highly correlated pairs will sound-off at nearly the same time. Let's say you are trading minute charts, and you have two highly correlated pairs. And, you have an alert for when RSI reaches a certain level Three black crows' could spell doom for the market 5 stars based on 78 reviews.
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