No, you weren’t mistaken, and we weren’t either! It’s true; all of the trade set-ups you’ve seen or heard about lately—particularly if you are a Lazy Trader premium member—are unfolding right now. It sure goes to show the natural ebb and flow of the markets, doesn’t it? Afterall, you probably remember thinking forex price action was rather dull in recent weeks, and then, seemingly all of a sudden, up pop no less than eight—yes, eight—noteworthy trade set-ups across a host of liquid currency pairs.
Now, read on, because we’ll let you know about the pairs we’re watching and trading most intently, but I believe that price action like we’ve seen recently also poses a number of other, important questions. And most notably is this one: When multiple set-ups are presented in succession, how do you choose which trades to ultimately take, and how many is too many open trades?
So using recent market action as a guide, here’s how to remain calm and calculating when the markets present multiple opportunities within a common window, as we’ve just seen with EURNOK, USDJPY, GBPCHF, AUDUSD, and four other pairs. Follow these guidelines to capitalize on high-quality trading opportunities without becoming overexposed to risk in the process.
Limit 3: Why You Can Indeed Have Too Many Open Trades
Many traders might wonder if there’s even any such thing as having too many open trades. Besides, doesn’t your trading strategy require you to take qualifying set-ups whenever one (or more) is presented in a market or asset you trade?
That logic, though—as true as it is—may cause overtrading and excessive exposure to risk at times like the present, when the four pairs noted above, and others including NZDUSD, CADJPY, GBPJPY, and EURGBP all showed viable opportunities to buy or sell established price patterns at/near established technical support or resistance on the charts.
To trade them all would simply be improper, and would leave you with what I’d deem far too many open trades. Here’s why:
- There’s overlap between many of the pairs. While shorting JPY is the prevailing trade idea, to do so by way of buying both USDJPY and GBPJPY, for example, would leave you overexposed to JPY. Risking 2% on each of those trades would be just like betting 4% on either one of them. You (hopefully) don’t risk that much per trade currently, so don’t start now just because multiple opportunities are presented.
- Your potential max loss increases with every open trade. Even if overexposure to one particular asset or currency isn’t a problem, risking 1-2% of your account on four or five different trades essentially creates excessive risk just the same. Rattling off numerous trades all at once like that could subject your account capital to a max loss of as much as 10% in the (unlikely) event that all of those trades went against you…and that’s tough to come back from.
These conditions are used to help establish the rule that you would trade no more than three set-ups at one time even if additional, qualifying ones were available. This, of course, excludes any trades that are already running and in progress from the prior weeks.
4 Ways to Select the Best Set-ups & Eliminate the Rest
Think of it this way: If ever a bevy of trade set-ups is presented to you at one time, focus not on the ones you’ll miss, but instead on the confidence you’ll have when executing only the two or three that look and feel the “best” to you. It’s a nice luxury to have, and something that doesn’t come around all that often. So when it does, consider these factors and isolate the strongest set-ups to trade:
Overexposure: Whenever multiple set-ups are presented involving the same currency, or any that are closely correlated, choose only one to trade. You don’t want the risk that comes with having double or triple exposure to say, USD, JPY, or commodities, which is why you’ll choose only one dollar- or yen-based pair to trade, and avoid trading multiple commodity dollars (CAD, AUD, NZD) at one time. Consider this an initial line of defence that will help you narrow down your choices in the interest of never having too many open trades at one time.
Technical Strength of Set-up: Consider also the technical strength of the set-up when isolating the best trade possibilities. Sure, assets or currency pairs that are testing, say, moving average support or resistance, are fine to trade, but if you also have a pair that’s testing an all-time high or low, or multi-year support or resistance, well, you’d be wise to trade the latter instead.
Probability: Naturally, trend trades are going to carry a higher probability than reversal trades, so when you have the luxury of choosing from multiple set-ups, perhaps look to secure a mix of both in order to keep probabilities on your side. Conversely, whenever multiple opportunities are presented at one time, you might want to avoid choosing only reversal trades. Pick one reversal set-up you like the best, then complement it with one or two trend trades to help balance out the odds of overall success.
Reward/Risk Profile: Yet another way to “filter” trade possibilities is using reward/risk profile. If ever you have several to choose from, you’ll likely also have one or more that offer 2:1, and perhaps some that offer even more, like 3:1 or 4:1. Taking viable set-ups that offer the most exemplary reward/risk profile is a great way to select two or three from a broader selection of trade possibilities, enabling you to prudently capitalise without having too many open trades.
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