The Dangers of Doubling Up on Your Trades

Filed under: Learn Forex Trading |

Today, I want to address the issue of taking trades on various currency pairs that are closely related in one way or another. If you watch a lot of currency pairs like I do, rather than just concentrating on, say, the major currency pairs, there can be a danger of over-trading. By over-trading, I do not mean simply putting too many trades on, but rather, putting too many of the same types of trade on. Let me explain…

 

For example, there are five forex currency pairs that I trade which include the CHF, which is the Swiss franc. These pairs are the USD/CHF, EUR/CHF, GBP/CHF, AUD/CHF, and CHF/JPY. Now, if the Swiss frank is experiencing particular strength or weakness at a particular time, then it is natural that you are going to see similar patterns emerge across all of these pairs. Now, if you take all of these trade setups, then you put yourself in a position of greater volatility. If all the trades move in your direction, then great! If they don’t, then your bank will have a big chunk taken out of it.

 

Now, if you do take all of these trades, you can still be profitable in the long run. The problem is that you are exposing yourself to greater volatility. And with greater volatility, come greater drawdowns and a bigger danger to your bank. The number one concern always has to be protecting your bank – because without your bank, you cannot trade and you are effectively out of the game. If your maximum drawdown is becoming too large, you have to think about risking less on each trade, and as a result, your profit potential will be diminished. It is a fine balancing act. So I would suggest not doubling up on too many trades involving the same currency, as it could backfire in spectacular style and bring emotion into your trading – which is something that we do not want.

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