Trade in currency baskets. Anton Hanzenko.

Continuing the topic of tactics for trading cross-rates and not only, the trade in currency baskets occupies its own niche. This approach is closely intertwined with the correlation strategy, but on a much larger scale. If the correlation strategy involved two or three currency pairs, then in the basket of currencies, their number will not be limited.

The approach of the trading of currency baskets is more suitable for experienced traders with a well-balanced and thought-out money management. Since this approach, it is the approach, and not the strategy, has long prospects and is more inclined to diversify transactions than to precise inputs and outputs from transactions.

Trade in currency baskets – the main essence.

The main essence of the currency basket trading is the opening of long positions on a lot of currency pairs in relation to one currency. The approach is applied to timeframes from H4 and higher, using majors and cross-rates. At the same time, it is necessary to limit ourselves to the main world currencies only: USD (American dollar), EUR (euro), GBP ( British pound), CHF (Swiss franc), JPY (Japanese yen), CAD ( Canadian dollar), AUD (Australian dollar), NZD (New Zealand dollar).

Since there is a correlation in the foreign exchange market, which can both grow and decline, the above mentioned currencies retain a certain dynamics to the main competitors. We trade in one currency (basket) against other major currencies.

Examples of major currency baskets:

• Shopping cart USD:

Strengthening USD

Buy: USD/CHF, USD/CAD, USD/JPY.
Sell: EUR/USD, GBP/USD, AUD/USD, NZD/USD.

Weakening USD
Sell: USD/CHF, USD/CAD, USD/JPY.
Buy: EUR/USD, GBP/USD, AUD/USD, NZD/USD.

• Shopping Cart EUR:

Strengthening EUR
Buy: EUR/USD, EUR/GBP, EUR/CHF, EUR/JPY, EUR/CAD, EUR/AUD, EUR/NZD.

Weakening USD
Sell: EUR/USD, EUR/GBP, EUR /CHF, EUR/JPY, EUR/CAD, EUR/AUD, EUR/NZD.

• Shopping Cart GBP:

Strengthening GBP
Sell: EUR/GBP
Buy: GBP/USD, GBP/CHF, GBP/JPY, GBP/CAD, GBP/AUD, GBP/NZD.

Weakening GBP
Buy: EUR/GBP
Sell: GBP/USD, GBP/CHF, GBP/JPY, GBP/CAD, GBP/AUD, GBP/NZD.

• Shopping cart JPY:

Strengthening JPY
Sell: USD/JPY, EUR/JPY, GBP/JPY, CHF/JPY, CAD/JPY, AUD/JPY, NZD/JPY.

Weakening of JPY
Buy: USD/JPY, EUR/JPY, GBP/JPY, CHF/JPY, CAD/JPY, AUD/JPY, NZD/JPY.

And so on for the CHF, CAD, AUD and NZD baskets.

The main objective of this approach is to diversify risks when trading a certain currency, from which a specific movement is expected. Of course, in different currency pairs, the final result will also be different due to a non-constant correlation, but the overall trend movement will be continued.

So, when the basket of the British pound (GBP) was trading since the beginning of the year, which was actively strengthening, there is only a pair of EUR/GBP left in the red – losing about 300 points. In the remaining pairs the profit is much higher: GBP/USD plus 1200 points, GBP/CHF plus about 750 points, GBP/JPY plus about 750 points, GBP/NZD plus about 1400 points.

Talking about the disadvantages of this approach, it is worth highlighting the possibility of large losses, which must take into account money management. Also, this approach is suitable only for investors who hold their positions for a long time open from several days, weeks to a year.

Also, this approach can be difficult because of the strength of a currency and its prospects, but along with this, this approach perfectly allows diversifying risks for long-term investors. And, with relatively low time spent by the terminal, to achieve excellent results!

Anton Hanzenko