In the world of futures trading, there is a particular incident that took place in September 2017. A seasoned futures trader, with 20 years of experience, lost 145 million yuan in just 10 days by going long on rubber futures and, overwhelmed by the loss, jumped from the 31st floor.

The rubber price plummeted from 17,000 in mid-September to 12,900 in just over two weeks, a drop of nearly 25%. The doji candlestick at the bottom of the chart became the final straw that broke him. From 140 million to zero, it all happened within just a few candlestick lines, causing a collective sigh throughout the futures industry.

Different people have different interpretations of this event: some believe his position was too heavy, while others think he didn't set a stop loss, making a margin call inevitable. However, one issue that was overlooked by everyone is that he put all his eggs in one basket, focusing on just one commodity, thereby infinitely increasing the risk of loss.

Imagine if he had diversified his investments across several commodities, spreading his capital among different ones; the rubber short squeeze wouldn't have hit him so hard. He could have reallocated his funds, ensuring survival in the market, and thus retaining the chance to make a comeback.

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In fact, there are many such black swan events, such as the 2020 crude oil futures' oil treasure incident, the Swiss franc black swan event, and encountering delisted stocks in the stock market, all of which pose extreme risks. Although the probability of such risks is low, it does not mean that you won't encounter them.

Therefore, in trading, it is best not to put all your eggs in one basket by fixating on a single commodity, but to spread the risk by operating in multiple commodities.

Below, I will use moving averages to demonstrate the comparison between two commodities.

For example, we use the EMA15 and EMA45 moving averages for trading, with the same logic of entry upon crossover.

The logic of entry upon crossover in trading suggests that if the two moving averages cross frequently, it is a losing phase, and if they diverge in the same direction, it is a profitable phase.

Let's compare the price movements of two commodities over the same time period.In the chart above, the top section is a 1-hour candlestick chart of the British Pound (GBP) against the US Dollar (USD), with the time frame starting from May 26th to the end of June.

The bottom section of the chart is a 1-hour candlestick chart of the US Dollar (USD) against the Japanese Yen (JPY), also with the time frame starting from May 26th to the end of June.

There are gains and losses in both the upper and lower trends, but the phases of their gains and losses are different.

In the first few days of the leftmost part of the GBP/USD trend, it was in a loss phase, while during the same period, the USD/JPY was in a profit phase, which could offset each other.

In the middle section of the trend, the GBP/USD only experienced losses for two or three days before entering a profit phase, while the USD/JPY below was in a long-term loss phase, which could also offset each other.

In the later part of the trend on the right, both currency pairs entered a profit phase.

By trading multiple currency pairs simultaneously and allocating our total position across them, we can offset some of the declines in the market that do not cooperate with the trading, resulting in a more even distribution of right and wrong trades, more moderate gains and losses, a smoother capital curve, and a more stable mindset to better navigate through the downturns.

Therefore, operating multiple currency pairs is indeed very practical, and in the following articles, I will explain three modes of multi-currency pair operations. I suggest you bookmark the articles for later reading.

1. The same trading strategy for multiple currency pairs

This method is the most common, widely used, and effective multi-currency pair trading model in practice. Using the same trading system, allocate the total position to different currency pairs for multi-currency pair trading.How many varieties should we choose to trade simultaneously?

For medium to long-term trading patterns at the daily and above 4-hour levels, the frequency of trading is relatively low, and it is not necessary to monitor the market every day. It is manageable to trade 8 to 10 varieties. Emphasize that if it is at the 4-hour level, looking at the big picture while trading the small, you must reduce the number of varieties traded. This is because entering at a smaller time frame increases the frequency of trading, requiring more time to monitor the market. Too many varieties can become overwhelming.

For 1-hour chart pattern trading, especially with the logic of looking at the big picture while trading the small, there will be some trading operations every day. For individual part-time traders, 5 to 6 varieties are essentially at full capacity.

For intraday and short-term trading at 5-minute or 15-minute intervals, the trading frequency is high, and it requires a lot of energy to monitor the market. In this case, you should not trade more than 3 varieties at the same time; otherwise, it is easy to miss market opportunities or make mistakes in the rush.

What if the same series of varieties have similar trends and stop losses at the same time?

Variations within the same series have similar trends, and in practice, using the same method to trade similar varieties can also hedge risks. Although these varieties have similar trends, they are not exactly the same in detail, and even if the methods are the same, the outcomes will differ.

The chart shows the 1-hour candlestick charts of three varieties: GBP/USD, AUD/USD, and gold/USD.

The trading logic is: enter when the market bottoms out and forms a reversal candlestick, set the stop loss at the low point of the reversal candlestick, and set the take profit at the 50% retracement of the downtrend.

The last day of the chart is last Friday's non-farm payrolls. It is expected that after the release of the non-farm data, the trends of non-USD varieties should be synchronized due to the influence of the US dollar index. However, the performance of these three varieties in this trade is different.On the far left, the British pound against the US dollar, with the help of the non-farm data, the market surged upwards, and the order was successfully taken profit.

In the middle, the Australian dollar against the US dollar, after the non-farm data was announced, the market had a surge, but the highest only reached 38.2% of the falling wave, the order could not be taken profit, and is still holding the position.

On the far right, gold against the US dollar, when the non-farm data was announced, the market had a quick downward penetration, after breaking through the previous low by 40 points, it quickly recovered, and the order was stopped out by a false breakout.

Even though affected by the non-farm data, the three non-American varieties used the same trading method, but there were three different results.

Therefore, in the same series of varieties, it is also possible to hedge risks in practice.

Here, it is suggested that in multi-variety trading, each variety should be considered separately, without considering their correlation, as long as there is a signal that fits the trading system, just enter the market directly.

2. Different trading strategies, for multiple varieties

The difficulty of this method of operation is slightly higher, using different trading plans, selecting different varieties to trade at the same time.

The purpose of doing this is to determine different plans for the characteristics of different varieties' trends, to hedge the risks of trading.

For example, in foreign exchange, the British pound against the US dollar, the British pound against the Japanese yen, crude oil futures, these varieties move quickly, move fast, and have a large space, suitable for breaking through the market. For example, the US dollar against the Swiss franc, the euro against the Swiss franc, these varieties have a more oscillating trend, move slowly, and have a relatively small space, suitable for entering the market on the rebound.The left side of the chart shows the hourly candlestick of the British pound against the US dollar, while the right side shows the hourly candlestick of the US dollar against the Swiss franc. The comparison is made for the recent week's market trend.

The left side shows that the British pound against the US dollar has a much smoother trend, with regular correction patterns, fast movement speed, and large space.

On the right side, the US dollar against the Swiss franc has a trend that is clearly more volatile, with many V-shaped reversal corrections, slow movement speed, and small space.

In practice, by targeting the different operational characteristics of various instruments and choosing different trading strategies, one can better hedge trading risks.

How many instruments to trade at the same time?

This approach can also be used to select several instruments according to the different cycles and frequencies mentioned above. Choose more for long-term trading and fewer for medium-term trading.

The specific number of instruments to choose still needs to be determined in conjunction with our own trading system and our schedule.

However, this method is not recommended for intraday trading. Intraday trading requires a lot of energy to monitor the market and requires us to react quickly to market conditions. When different systems trade multiple instruments, it's a bit like fighting with both hands, and in the highly tense trading environment, mistakes can easily be made.

On the other hand, medium to long-term trading allows enough time to switch thinking, enabling a more calm analysis and execution, making the operation more feasible.

There is another approach to trading multiple instruments with different strategies, which is to use different strategies in different markets.For instance, the rules of stock market trading are not flexible enough; one can only go long, not short, and the T+1 trading system does not allow for intraday closing of positions, making short-term trading operations quite challenging. Therefore, we opt for a medium to long-term trading model in the stock market, which does not consume much energy.

Simultaneously, in markets with flexible trading rules such as futures or foreign exchange, we engage in medium to short-term trades, with both long and short positions available, and a T+0 model, which does not hinder short-term trading activities.

3. Choose one primary product to trade, with other products as support.

This approach is suitable for traders who have a particular preference for a specific product, being familiar with its attributes and operational characteristics, and possessing high-probability trading strategies tailored to that product.

However, trading only one product presents two issues.

The first issue: The trading frequency is not high enough. Trading opportunities that meet the high-probability characteristics of a single product often go through multiple filters, resulting in a low frequency of occurrence. Thus, in practice, one needs to wait for a long time, which is a great test of patience.

In real trading, it often happens like this: You know which situations have high probability and a large reward-to-risk ratio, but if you wait for three days and no opportunity arises, you start to get anxious. If after five days, it still doesn't appear, it becomes even more uncomfortable. At this point, seeing the market move significantly while not making any profit is truly an agonizing experience. Consequently, you might enter the market based on a "more or less similar pattern," breaking the original trading plan, and the consistency of the trade is compromised, potentially turning a profit into a loss.

It's akin to dieting for weight loss; once you take the first bite, it's all downhill from there, and the more you try to lose weight, the heavier you get.

If we focus on one product and choose a few others as support, our trading frequency will increase, which can somewhat solve the problem of itchy hands, preventing us from just watching the market without taking action.

The second issue: Trading only one product means you cannot hedge the risks involved in trading.If we allocate the main position to a single variety and distribute the remaining funds to other different varieties, we can also hedge the risks associated with trading.

Let me illustrate this with a picture.

Crude oil has a significant characteristic in its price movement: after a fake breakout, there is a real trend, with fast and large movement spaces, which is an excellent trading opportunity. However, the frequency of its occurrence is very low, sometimes not even a good trading opportunity may arise in a month.

The chart below is a 1-hour candlestick chart of crude oil.

The chart marks a standard horizontal break fake breakout pattern. In the red circle, three horizontal support points are very clear and distinct, and the support line is very standard. After a significant drop from a high position, there is also a structure of consolidation.

But after the market breaks down through the support, it quickly forms an upward engulfing reversal pattern, confirming that the breakout was fake, and then the market rises sharply.

Such trading opportunities have a clear logic, with fast-moving and large spaces for long positions, but its only drawback is the very long waiting time and low frequency of occurrence.

The candlesticks in the chart represent the market trend over three weeks, with only this one reasonable opportunity. If one only trades this pattern, it requires a long wait, which is a severe test of patience.

At this time, we can focus on crude oil and allocate some smaller positions to other varieties. While waiting for the entry opportunity in crude oil, we can trade other varieties. This way, we can hedge risks and also soothe the anxiety caused by long waiting periods, which is very helpful for controlling the urge to trade and holding onto the most important high-probability patterns.

4. Precautions for trading multiple varieties(1) Diversify, but stick to a fixed selection of varieties.

When engaging in multi-variety trading, it is essential to choose a fixed selection of varieties and not to switch between them arbitrarily. With so many varieties available, it is impossible to be thoroughly familiar with all of them. It is better to focus on a few selected varieties, aiming for mastery rather than quantity.

(2) Keep only the trading varieties on your trading software, and ignore the rest.

This is especially important when trading is not going well, or when there are no trading opportunities in the varieties you are handling. At such times, it is most tempting to act impulsively.

If there are too many irrelevant varieties on the trading software, and if self-control is weak, it is easy to be swayed by the perception of opportunities in other varieties. This can lead to trading in varieties that were not originally considered, and opening positions in opportunities that do not align with one's strategy.

When the true opportunities that belong to you arrive, you might find yourself without the necessary positions, thus missing out on potential profits. This results in unnecessary losses and missed gains, amplifying the pain of trading.

(3) The use of position sizing is central.

The three multi-variety trading models mentioned above all require strict and reasonable capital management rules. Proper position management is crucial for these models to be effective.

(4) Avoid applying different strategies to the same variety.

This approach can lead to confusion in practice, as you may encounter conflicting signals from different strategies for the same variety. For instance, Strategy A might indicate a bullish position, while Strategy B suggests a bearish stance. In such situations, it becomes difficult to determine the correct direction, making it challenging to execute trades effectively.