How To Diversify Your Day Trading Webinar Part 3-punyu

Don’t Put All Your Eggs in One Basket: How to Diversify Your Day Trading Webinar Transcript Part 3 of 4 This webinar transcript is brought to you by NetPicks, day trading systems and strategies developer since 1996. For more free day trading articles, analysis, videos, webinars, and more be sure to visit If you enjoyed reading about this webinar, be sure to get on our mailing list and sign up for future webinars, as well as view all past webinar recordings at There is a place on the internet that shows at a glance some Forex correlations, and this is a website called and on that homepage there’s a button you can click that says “Forex Correlation,” and this is really nice because this presents correlations for various timeframes. I simply had a little picture of the 5-minute correlation, you know, just to demonstrate how Forex pairs are correlated. And of course at top you can see the AUDUSD and the euro-yen and euro-USD, etcetera. And on the side, the same pairs are represented and at the intersection of each — of any pair, you find the correlation that exists for this 5-minute interval that was charted here. And again, this is on the website. But as you can see along the diagonal, everything is 100 percent because AUSUSD is 100 percent correlated with itself obviously. The nice thing about Forex trading is there are tools like this you can go to and you can — you can — you could see what the correlations are between different pairs and why you may want to pick a couple pairs that are not correlated when you want to diversify your Forex trading. Basically, if it’s above 80, it’s high and the markets tend to move in the same way. Or if it’s below 80, they move in the same way but in opposite direction. I mean they move in the opposite direction but they’re highly correlated. Anything below 60 is low and considered to be, you know, fairly uncorrelated and a good opportunity for diversification. Okay. Now, the reason why I show you this is those first two charts that I show you earlier on, let me jump back to them quickly. Let’s see here. Okay. This chart right here. This equity chart for market number 1, get a kind of picture in your mind what this looks like, you know, the ups and downs and the jaggedness of it. And then here’s another one for market number 2 and what I’ve done here is I’ll show what happens when I diversify my trading by combining these two markets. Okay, right off the bat, right off the bat you can see, it’s a smoother curve. This still has a total gain of 6,000 but notice how much smoother it is. There are fewer areas where the drawdown lasts, you know, two weeks. There is — and where there are r drawdowns, notice they’re much smaller. These are two uncorrelated markets and by combining the trading of these two markets, I realize a much smoother equity curve. So this makes me feel better. I don’t have as many days or weeks where I’m trading in the red and simply makes trading a little bit easier for me. Again, it started off, you know, a little jagged down here but very little negative equity in the beginning and a very nice smooth curve up. By adding the third market that I showed you, like at this chart — right here. Notice, it’s a little bit smoother than the two trades but not a whole lot more. And again, my point here is to show diversification by even just two markets can make a huge difference in how smooth your equity curve is. So if you’re a day trader now and you’re trading just the S&P500, you’re trading just the Russell or just crude oil and you’ve had some very challenging weeks where you just want to throw in the towel or you get frustrated, I would strongly consider adding at least one more market, one more market can make all the difference in a trading equity curve, okay. That would be this example here, adding just one more market. Now remember, this was the ideal market. This is the one where every trade I yield $20 and notice that with three markets, I’m just going to flip back and forth, well it’s, you know, it has done a pretty good job of approaching that line. The more markets you add, the closer you’re going to get to a smoother trading curve because the ups in one market will be offset by the downs in the other market. The consolidation in one area may be offset by a breakout in another market. This is why you want to choose markets with different, well, markets that are non-correlated. Because if one market is trending, you know what, the second market will also be trending. If the other market is highly susceptible to the jobs report on Friday and you trade Fridays, you don’t want your second market to be susceptible to the same report. So again, being aware of market correlation and what the concept means and allowing a trade plan to include more than one market can really greatly help smooth out these curves. Okay. Mathematically, you have smoother equity curve and this is particularly good with Forex. Forex traders out there will really appreciate this. Instead of placing the same risk per trade, if you’re going to two markets, place half the risk for trade. So mathematically, you’ll get a smoother curve and a smaller risk per trade. The psychological benefits can’t be overstated. The smaller drawdowns, less time in a drawdown, all of this easy on your trading psychology. I consider this if there is a holy grail of trading, it’s really reducing the psychological impact of trading. And I believe that this diversification can really help. Okay, I want to show you some examples. Two markets, okay. One way to diversify is to pick two markets at the same time. Now for me personally, I don’t do this because I find it difficult to focus on more than one market and I get kind of emotionally wrapped up in a trade, you know, I’m watching it and you know, it’s hard for me to keep to in mind but I have done it in the past and if you’re planning to do two at one time, maybe your trading opportunities only allow you one session in a day, and so two markets will make sense. Pick a vulnerable market like let’s say crude oil or an index or commodity or something. And then if you want to add to that market, I would suggest a slow market to add to that, like for instance a treasury futures, something that you got plenty of time to adjust, plenty of time for you to set up your trade, plenty of time to put your stops and your targets and to move the joint trading management. So, two markets at one time, pick a treasury and then pick something that’s not correlated or well with it at all, maybe a stock index, future or an energy commodity. This is actually quite doable. We’ve got an — a number of coaches have done this and trading with slower markets in conjunction with more volatile one more. Another approach — this is the approach that I personally take, is trading two or more markets in succession. Okay again I said I was on the east coast so if I’m up real early, I may want to trade Forex in the European session. And then switch to crude oil futures, you know, between 8:30 to 9:00 Eastern Time in the morning. And when its 9:30 walls around and the stock market in New York opens up, I can trade stock index like the Russell 2000. Then maybe mid morning, picking agriculture like a wheat or soybeans. This is actually quite doable. It’s really quite doable. And again, if you’re trading one instrument at this point, you may want to consider adding another one either at the front end or the back end of your trading session and add that to your plan. And then at the end of each day, at the end of each week, you should be able to notice that your combined equity gain and loss will be much more smoothed out. You will see a smoother curve, and at the end of the week you’ll have more weeks, you have more weeks that are winning weeks than losing weeks. I mean, more winning weeks you have in the past and with just one or two additions you may even be able to eliminate by losing week altogether. Again, with day trading we can’t expect every week to be 100 percent a winning week and that the first couple charts I showed, even a very solid trade plan with great expectation and a good 2.5 profit factor, can still yield weeks that are going to be negative. So look at the performance results, you know, by day and by week as well. I strongly recommend analyzing all your tradings. Some type of performance tool — NetPicks has something called universal trade analysis, it’s a great tool but any way that you can analyze your trade and observe them and plot them, it’s going to make all the difference in the world. So you want to pick a couple of markets and this is finally our — I suggest merely pick up the whole market but you trade in different days. The reason I brought this up, I have not actually done this but in using the performance tools that I’ve used, some of my markets actually do better on Mondays and Wednesdays or Tuesdays and Thursdays or just don’t work well on Fridays at all. And if you’re trading a single instrument and you’re analyzing it through a tool like UTA and you’re noticing there’s a day or two each week that it just doesn’t perform that well, or you may want to consider simply not trading that market those days of the week and pick another one and find one with some back testing that it looks like will be profitable on those days. So another way to diversify your trading is to pick a couple of markets that are traded on different days of the week. And again, with some analysis and back testing, you can judge yourself if that will be a profitable trading plan or one that will smooth up your equity curve because really in the end, I’m looking for a smoothed up curve to make trading just a little bit easier for me. Just a couple of words about system trading. When we trade systems like NetPicks systems or your own developed systems or anyone’s systems out there, these are based on a positive expectation, you know that certain conditions are going to repeat themselves often enough that you can make a profit in the long run, okay. And we need to keep in mind that we want to be looking at this forest, not the daily trees, not an each individual trades because that can get quite frustrating, nerve-wrecking. You wanted to keep a bird’s eye view looking down on the forest, because we can never predict next trade. We don’t know if the next trade is going to be a beginning of a breakout or the beginning of some chop and consolidation. We don’t know that. We can look back and see that “Oh, we are in a trend or we’re in consolidation,” but you can’t look forward and say it’s going to continue. When we are system trading, we are looking at the long term, and we’re looking at a positive expectation that what makes our system profitable will continue to repeat itself often enough that we can make a profit. Therefore, you want to always lean on the system. No matter what plan you put together, whether it’s trading multiple markets at a time or markets in succession or different markets on different days of the week. Or the same market with different time available on your charts, you want to always trade consistently, and after back testing had shown it to be profitable, lean on the system and let the system do its thing eventually. Okay. That’s basically what I had prepared for today. You’re certainly always welcome to contact us at, [email protected] and we have phone number posted there and our address there. Today’s session was really just to kind of open up the possibilities of day trading diversification to you and for you to consider multiple markets and timeframes and maybe systems or what have you as a way to smooth out that equity curve and in the way I look at it to really help with the trading psychology that I think all day traders battle on a daily basis and so it’s a battle that we need to overcome and I believe that diversification is one way and a very good way to combat that. Okay. Let’s see, I’ve gone about 40 minutes. I haven’t — I’m looking to these questions here but I’m not really sure I see any — maybe one of the other coaches can — I don’t know if there’s been questions that have been answered to her. Brian Short: Hey Bob, this is Brian. Bob Malinowski: Yes. Brian Short: What I will do is I’ll kind of go down to the questions here and read them to you if that’s– Bob Malinowski: Okay. Brian Short: –all right then you’re going to respond. Bob Malinowski: Okay, great. Brian Short: And so one of the questions was from Orville. He was asking if you could give the link for that 5-minute Forex correlation matrix. If you enjoyed reading about this webinar, be sure to get on our mailing list and sign up for future webinars, as well as view all past webinar recordings at ..netpicks../learning-center/training-webinars/ 相关的主题文章:

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