This morning I received an email from Michael in Australia. He has been following our Simple Day Trading Strategy for trading multiple markets and wrote: "I only trade the e-mini S&P".
Here's my answer: BIG mistake!
Never trade only one market. There are some times when a market is trending and easy to trade, and there are times when markets are just moving sideways. Take a look at the 5 min chart of the e-mini S&P on 10/20/2008:
As you can see the market was just moving sideways and not really trending. If you applied a trend-following strategy on this market, you might have gotten stopped out before reaching your profit target and therefore realized a loss.
Now take a look at the 5-min chat of 30-year Treasury Bonds on the same day:
Can you see how beautifully this market is trending, while the e-mini S&P is just moving sideways. A trend-following strategy on this market might have resulted in nice profits.
The more markets you watch, the more opportunities you get every day. As I like to say "Finding good trades means de-selecting the bad trades".
Let me explain:
Let's say you're in the mood for ice cream. You walk to the corner store and ask the lady behind the counter "Do you have ice cream?" The lady responds "Sure. What do you want: strawberry or vanilla ice cream?" Actually, you were looking for chocolate ice cream, but since you only have these two flavors to choose from, you compromise and pick the vanilla ice cream. Tha's not exactly what you were looking for, but it's close enough. After all, it's ice cream and you don't walk away empty handed.
Now think about the following scenario: You are in the mood for ice cream and walk into a Baskin Robbins. You say "I want ice cream" and the guy behind the counter smiles and say: "Of course! What flavor do you want?" You respond: "Chocolate" and he asks you "Dark Chocolate, White Chocolate, Belgium Chocolate, Milk Chocolate or Truffle Chocolate?" NOW you have choices and you'll get exactly what you want.
When you are trading only one market, you only have limited choices and you will compromise. After all, you don't want to walk away "empty handed" and you might take a trade that "somewhat" fits your trading plan. It's not exactly what you've been looking for, but hey! A trade is a trade, right?
Trading multiple markets is like walking into a Baskin Robbins if you want ice cream: You have many choices and can pick the one that fits YOUR style. You will only take the best trades, and therefore increase your chances of making money with day trading.
Make sense?
Gotta go now; all this talk about ice cream made me hungry.
Disclaimer: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary and does not constitute investment advice. Forex Capital Markets LLC. will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.
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