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Use Trade Ideas Correctly
Just quickly responding to a question from a subscriber asking whether they should hold on to all of the trades that they’ve taken today based on the video commentary.
So, the reason they’re asking is because they’re seeing the dollar index moving slightly lower in today’s session. And a lot of these trades are obviously correlated with the U.S. dollar.
So firstly, just to stress a very important point once again, the trade ideas highlighted as part of the video commentary are just trade ideas. They are not intended to be trade calls, they’re also not intended to be trade signals.
The videos are basically designed to help you see how we use all of the information available in the terminal to you advantage to basically find a bias for a particular currency pair based on weakness and strength, and how do we go about finding high probability trading opportunities based on the prevailing sentiment.
So firstly, these biases are not trade calls, they’re not trade signals, they are merely examples of how the fundamentals and the sentiment can be applied to look for possible trade ideas.
Now, to the second question of whether you should hold on to those trades with the dollar starting to move lower, firstly, we can’t really give advice on any open trades that you’ve taken. That is always going to be the sole discretion of every trader.
Secondly, risk management is very, very important. It’s the most important part of trading. And even though we have a particular bias on five major currencies, and even on the Aussie yen, so that six pairs, even though we have a particular bias on those six pairs, from a personal point of view as a trader, I wouldn’t necessarily trade all six of those particular pairs because that won’t really be very good risk and money management from a trading point of view.
So you see all six of these trades are based currently on the same dominant theme today, which is a risk-off turn. And for the majors, these five at least, most of them are obviously going to be dependent on moves we see in the dollar index.
So, if we decide to trade all six of the pairs that we have a particular bias on today and the risk-on suddenly changes, which is possible, or the market decides to suddenly just start to sell the dollar without a catalyst, which is also possible, then all of these pairs will start to go against us very quickly because all six of them are correlated based on the same type of sentiment. So, it’s very important to make sure that you’re not overexposing your account by risking too much, by over-leveraging, and also very important to make sure that you’re not overexposed to any particular sentiment that you might be trading.
If you want to diversify your odds and trade more than one pair that are correlated to the same sentiment, then just make sure that you’re keeping your risk management in control. So, for example, if you wanted to diversify your odds and trade all five of these pairs, that’s fine, but just make sure that you’re not risking a full position, for example, on every one of them, right?
So, you could split that risk between all of the pairs so that you’re basically only risking, let’s say, 1% or less than 1% of your total account, and you can split that 1% basically up between those five trades so you’re only risking zero spot 2%, for example, on every one of the majors if you decide to trade all of them.
When looking at these biases and these trade ideas, always make sure that you understand how they are intended to be used, and always make sure to protect your account by performing proper risk and money management.
That is a very, very important point that I just wanted to stress in today’s session in line with that subscriber question.