Hi fellow traders,

How do you all think when trading different futures contracts that move together or move based on something common (like major currency pairs). Examples:

Metals (HG,SI,PL) - Basic observation shows they generally rise and fall together
Currencies with USD as the quote currency (6A, 6C, 6B) - Basic observation shows they generally rise and fall together

If one in the group is falling (say 6C), do you hesitate to go long on another (say 6B) even if price action is showing it is headed up?

To what extent do you allow what the others in the group are doing to affect your decision making, or do you simply not factor that in at all?

I know that everything in a group can and often move independently due to them being two different things with just some things that affect them commonly, but from a psychological standpoint, should one just not allow themselves be affected by this at all and just trust in the market context and price action (as purely technical traders)?

Curious what you all think, and if anyone knows of any good books that speak to this or related topics! (preferably one about futures trading, but forex would be good too since the concept would be the similar). I'm very interested to learn about topics such as these which relate to proper way of thinking as opposed to systems or technical analysis.

Thanks!!

logicalperson

Hi all,

Just wanted to update that I found the answer on my own. What I didn't know was that there's a name for what I was asking about and it's correlation. I've found material that answered my question perfectly and just wanted to share in case someone had the same question:

First of all this webinar from this very website regarding portfolio diversification:

Also this book:

Following the Trend, Diversified Managed Futures Trading by Andreas F. Clenow

To summarize: Looking at and trading with as much diversity (low correlation between assets) in your universe as possible will improve your performance and smooth out your returns by reducing volatility and drawdowns. This is the single most important factor to improving performance according to Andreas Clenow who stated novice traders tend to just focus on entries/exits but ignore this aspect.

For me this meant looking at rates and agricultural products which I generally ignored before.

The depth of the importance of this single point can't be understood nor felt just from my post of course. If you're unfamiliar with this concept, I highly recommend checking out the materials above!

logicalperson