Thread: The usual suspects - effective baskets

I have read enough threads about foreign currency baskets and related systems, but most do not make much sense to me.Leaving automated systems aside, I think it would be interesting to talk about combinations of 2-5 pairs that better reflect how the market is moving lately.This could be useful for those who seek to capture a movement of a currency without depending exclusively on the main peers such as EUR/USD.The main torque can be raised, but also assign some capital to other peers that can still have a tour.For example: EUR: 1. EUR/USD 2. EUR/GBP 3.?4.?5.?Isn't there Eur/JPy?Because?Because lately, EUR and JPY have operated with a "Risk On" and "Risk off" dynamic in the market.If the EUR is collapsing due to the global bag rally, the EUR/JPY could be stable because the pairs with JPY would also be climbing.Another example: JPY: 1. USD/JPY 2.Is it a Japan's own event or a reaction to risk aversion?Depending on the context, this list could be reduced to only 2-3 pairs, since sometimes a basketball with less pairs makes more sense.I think you can make ready for each main currency with adjusted versions according to the factors that are promoting the market at that time.Against all this is the eternal debate: "Why ruin your advantage with a Hedge?"

If you check some threads on baskets in trading forums, you will notice that people or enjoy complicating without need, or does not understand the mathematical relationship between the "hedges" and "rings".Except for an exception, algebraic cancellation is applied, for example: (long

I totally agree, but I tend to concentrate my positions too much and I want to find quick and effective ways to divide a position into a second or third pair without losing effectiveness.

Your publications are pure gold.This same line of thought led me to evolve from operating baskets to focus on the main peers.

Thank you.You can have different opinions about where the market will move and apply different analysis techniques, but where mathematics and logic send, there is no room for interpretation.Ultimately, the only way to win is to be clearly when the price rises and purely short when it falls, enough to exceed costs.Everything else —Hedges, baskets, position scaling, decision making based on P/L, position management methods - is only smoke and mirrors.None of that provides a real long -term advantage.The sooner the traders understand this, before they will begin to really advance.

I listen to you strong and of course!You don't have to go back.

Example: at the ECB conference last Thursday, which was a bearish catalyst for the EUR in the short term, would you prefer to be short in EUR/USD or divide the position in EUR/USD, EUR/GBP and perhaps another pair of the EUR,maintaining the same total nominal value?Because?

Good question.In my opinion: I agree that the EUR is currently the fundamentally weaker currency and has immediate potential to fall, especially because Draghi has already indicated that if inflation does not rebound, the QE program will be reviewed and probably expanded.I see the USD as strong, as long as the market continues to anticipate a raised rise in the coming months.This depends on inflation, which remains below the objective of the Fed, and on employment data.In addition, EUR and USD have a negative correlation because EUR/USD is the most negotiated torque.

To clarify, I mean the press conference in real time and just after.Very short term.

In that case, it does not make much difference what pairs you use with EUR (unless there is another similar impact event occurring at the same time with another currency