Dealing with correlations and volatility in multiple markets.
Let's have a short thread on what markets I trade, why and how I approach them from a risk perspective.
/cont
Let's have a short thread on what markets I trade, why and how I approach them from a risk perspective.
/cont
I have always been daytrade, trading one or two markets tops and picking up trades on 5min charts or tick charts. In the last few months, though, I decided to switch and look for intra-week positions (moving to a new city so I could touch the grass more).
A lot of people when they swing trade, basically trade everything, as charting doesn't take much time they just jump into several positions without realizing they trade highly correlated markets. If you buy BTC, ETH, LTC, ADA and you are wrong on one, you are likely wrong on all.
So blindly trading everything is not really good. On the other hand, I like to be active in the markets, just clocking one trade after another that fits my system. But with this intra-week approach trading only one market, I would end up with maybe one/two trades a week.
So I needed to pick a basket of markets that are not so correlated together. This created another issue, though, as my approach to trading is quite systematic (following a set of rules, all trades essentially look the same)...
There were plenty of situations where for example, I watched BTC going up without me as I didn't have the setup, but the perfect setup happened on ETH.
I ended up trading 8 markets, but in reality, I only trade 5. BTC/ETH, ES/NQ, Euro/GBP, Gold/Crude. Expect gold and crude the other markets have almost a 1:1 correlation.
You can see the correlations in the table below. Picking two markets from each basket (Forex, Crypto, Indices, Commodities), gives me a great number of trading opportunities and I don't have to take trades that are sub-optimal.
Of course, you will always miss things, but I believe this is a great way to do things if you focus more on the swing side. Also worth mentioning that your strategy needs to really be hard rule-based, I have criteria for each trade I take, and if they are not met I don't take it.
Because of these rules is extremely rare that I have a valid setup in two correlated markets at the same time, and if I do it is still quite easy to pick a better one.
Anyway, I just wanted to quickly share insight into how I do things and how I am able to still be active in the markets but not forced to watch a 1minute chart for 8 hours a day.
If you want to learn how I do things more in-depth, read the blog or pick up Bootcamp, which is currently 25% off until the 28th of November. You will get access to my strategy, updates and private discord.
tradingriot.com
tradingriot.com
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