Looking to combine basket trading and s/r, VSA

Hey everyone,

I feel I've had a brainwave...Would it be possible to combine basket trading methodologies with support/resistance levels and volume analysis at these levels? This way, levels could be drawn where there is a likelihood of many pairs reversing, and could help to increase the already high gains experienced by some trading baskets.

What do you guys think?

Em

You could use the USDX for your s/r lines. Using a basket of USD crosses because they will react together.

This is what a lot of successful traders do... they look at support and resistance levels across various currencies because all currencys are correlated to some degree.

Gaining insight on support and resistance across various currency pairs is logical.

However, basket trading is really no different that just increasing your lot size or hedging against your position.

Say your trading 4 pairs that all heavily correlate in the direction or opposite direction in which EUR/USD moves. If you believe EUR/USD will go up you're obviously going to place a trade for all 4 currency pairs in the direction that correlates to EUR/USD moving up. If you're wrong now you will just have 4 wrong positions instead of 1 wrong position, plus you will have been charged 4 times the spread. Dumb idea.

Say you trade 2 pairs and they correlate in the same direction that EUR/USD moves. If you place 1 buy on EUR/USD and 1 sell on X/X currency now it's just equivalent to a hedge in which once position will eventually have to be eliminated for a profit to be made. Having to eliminate a position in a hedge defeats the purpose of what a hedge is in the first place. Not only that but you would have to pay 2x the spread. Also stupid if you ask me.

Sure one currency in a basket traded hedge may not move exactly in sync with it's correlated pair leaving room for a small gain due to the difference of the correlated price. Placing a hedge position in hopes to profit off the price range difference with two correlated pairs is far more complicated than just placing a single trade. I highly doubt there is a single trader in this world who profits solely off hedged basket trades. If there was a successful trader, trading hedged basket trades he's an idiot anyways due to the fact that the amount of complexity he is overcomming in such trades to be successful would make him 20x more successful if he dealt with single, simple, standard buy/sell positions.