Trading Multiple Uncorrelated Markets

[rs1 10]

Hi all,

 

Alot of people say that you should only trade one market and become an expert at that market and nothing else. I guess this makes sense if you are starting out and need to focus to develop your skills as a trader. But if you are trading a consistent systematic method, then surely by applying to it multiple uncorrelated markets can only help your performance? For example, as I understand it, Opening Range breakouts used to work very well on the S&P 500 for a while but then stopped working. However, they continued working on other markets with volatility such as currencies etc. So if you were trading a basket of markets (say one currency, one commodity, one fixed income and one equity index), the other markets would make up for the S&P 500 and your equity curve would be smoother and more consistent. And you don't have to suffer through large periods of drawdown.

 

Does this make sense to people, or am I missing something obvious?

 

By the way, if anyone know where to get hold of correlations between markets on the net somewhere that would be very helpful.

 

Thanks

[Soultrader 12]

Hi all,

 

Alot of people say that you should only trade one market and become an expert at that market and nothing else. I guess this makes sense if you are starting out and need to focus to develop your skills as a trader. But if you are trading a consistent systematic method, then surely by applying to it multiple uncorrelated markets can only help your performance? For example, as I understand it, Opening Range breakouts used to work very well on the S&P 500 for a while but then stopped working. However, they continued working on other markets with volatility such as currencies etc. So if you were trading a basket of markets (say one currency, one commodity, one fixed income and one equity index), the other markets would make up for the S&P 500 and your equity curve would be smoother and more consistent. And you don't have to suffer through large periods of drawdown.

 

Does this make sense to people, or am I missing something obvious?

 

By the way, if anyone know where to get hold of correlations between markets on the net somewhere that would be very helpful.

 

Thanks

 

 

I was taught the same thing and though I agree to some point I disagree as well. Studying one market is good as you can learn the personality of the market. However, when there are minimal opportunities throughout the day... you will be in a situation where you will be forcing trades hoping for a move. As a result this could lead to overtrading.

 

It would be advisable to look at a few markets that share the same personality as the one you are studying now. Preferably similar tick size so you wont make mistakes on position sizing and risk management.

 

I learned something interesting today talking to a employee from a FCM (former currency trader) The big boys that trade the Nikkei here discuss their positions and trades over dinner. In other words buy/sell decision are made on the tables. Hence, traditional technical analysis does not work in this market. I always felt this was the case and had to adapt a different approach with this market. However, I found it very interesting to hear this.

[rs1 10]

Thanks for the reply Soultrader. Great site, by the way, really appreciate the intelligent discussions that go on here.

 

Interesting story about the Nikkei, that must be one tough market to trade!

[atto 20]

I find using uncorrelated markets is most useful for longer term trading, when you're holding multiple positions at once. The main issue is that trading uncorrelated markets doesn't nessessarily clean up the equity curve for day trades, because strategies are most affected by differing market conditions. Volatility tends to be highly correlated across almost all markets, even if it's inversely correlated, as general investment fear and greed changes.

 

However, if you have a robust strategy, trading several markets will give you more trade opportunities (which should be largely uncorrelated with each other; ie, you don't want to trade a breakout in both the ES and NQ at the same time with full positions, because you're doubling risk on equities).

[MidKnight 12]

I learned something interesting today talking to a employee from a FCM (former currency trader) The big boys that trade the Nikkei here discuss their positions and trades over dinner. In other words buy/sell decision are made on the tables. Hence, traditional technical analysis does not work in this market. I always felt this was the case and had to adapt a different approach with this market. However, I found it very interesting to hear this.

 

!!!! @#!#! :\

 

Wow! Thats pretty interesting.

 

With kind regards,

MK