Trader Dale Volume Profile

What instruments to trade?
In this picture you can, for example, see that correlation between EUR/USD and USD/JPY is -4.8%.
This is a really low correlation, and it means that those currency
pairs move quite differently and independently to each other.
If you want to make your instrument list bigger, you need to accept
the fact that there will be more and more instruments with pretty
high correlation. Unfortunately, there isn’t a simple way to get rid
of the correlation problem because the markets are connected. If
there is for example event like US Presidential election, you can be
sure that a lot of markets and instruments will be affected and the
price movements will be very similar in many markets. I don’t see a
problem with having an open position at that time (if it is part of
your trading strategy, of course). Where I DO see a problem is when
you trade too many instruments, and suddenly you are in too many
HEAVILY correlated positions that all get triggered because of the
The bigger the
instrument list,
the more heavily
correlated
instruments and
trades.
Presidental election! This is called Excessive risk exposure, and it is a problem which you want to
avoid.
It doesn’t have to be an extreme situation like that; sometimes there is something as simple as a
USD rally. When this happens, all the pairs where one of the currency is USD move in unison. If
you trade too many instruments with USD, you can find yourself in a pretty messy situation with,
for example, 5 open trades all dependant on how the USD will move. Most likely all those 5 trades
will end the same way, and that is just too much risk! If you were an institutional trader, you
would probably get sacked for doing that.
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