Basket trading strategy is one of the many forex trading strategies used by traders. It is not known exactly who started to develop this basket trading strategy. But in the Forexfactory community forum. It was found that the one who developed this strategy was a person with the nickname Trader 101.
Basket trading strategy then growth and increasingly popular among traders in community forex forums. Where so many traders interested to learn how to use basket trading strategy Forexfactory.
Maybe you are interested in this strategy, therefore I will try to write about trading basket trading strategies. As an introduction, this strategy uses 14 currency pairs and uses a demo account. Maybe you are curious. Why only use a demo account? To release your curiosity, enjoy and continue reading.
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Basket trading strategies explained
Actually, I am not clear about the name basket trading strategy. Why choose a basket trading name instead of something else? Maybe you have heard with a quote “Don’t put all eggs in one basket”. I think it is for this reason that this strategy has come to be called the basket trading strategy.
Because in operating this strategy a trader does not only choose one pair or asset but several pairs, so it is in line with the slogan “Don’t put your all eggs in one basket”
Basket trading definition
Basket trading strategy is a place to sell or buy a group of securities in one order. The basket trading strategy can allow a person to determine a particular type of stock or sector.
Traders can also target assets other than stocks such as bonds, commodities and currencies. There are several benefits that can be obtained when buying stocks through basket trading. strategy.
One of the benefits is a diversification process that can reduce the volatility of individual share purchases. Basket trading can be done by anyone, be it hedge funds, institutional investors to retail traders.
Basket trading system, also known as the abbreviation BTS, can be interpreted as a market analysis technique using a demo account with 14 pairs that must be filled by the OP. Later the results from the demo account will be an indicator for traders before deciding on the Open new trades.
Pairs group in basket trading strategy
As has been explained that the basket trading strategy uses 14 currency pairs which are divided into two groups, namely sell pairs and buy pairs.
Sell pairs:
- 1. AUDUSD.
- 2. NZDJPY
- 3. GBPCHF
- 4. EURUSD
- `5. EURCHF
- 6. CHFJPY
- 7. USDJPY
Buy pairs
- 1. USDCHF
- 2. EURGBP
- 3. NZDUSD
- 4. GBPUSD
- 5. EURJPY
- 6. AUDJPY
- 7. GBPJPY
How basket trading strategies work
The way a basket trading strategy works is to try to take advantage of the signals generated by a set of pairs traded on a demo account.
For beginners, this may be quite confusing, but for experienced traders, they know that there are a correlation and uncorrelation between one currency pair and another.
When a group of currency pairs shows a negative value, the trader will execute the order with either a profit or loss condition. A group of 14 pairs is used as a trading signal, by looking at the portfolio changes in the entire transaction.
Even though the basket trading strategy utilizes a total of 14 pairs at once in opening positions, because it only uses a demo account, it doesn’t matter as long as you haven’t faced a margin call.
Because what is used is a signal that is given through the correlation of the best currency strengthening to open a position on a real account.
Pair currency in basket trading strategy
In basket trading strategy is to take advantage of a group of currency pairs totalling 14 pairs as mentioned above. These pairs to open SELL for AUDUSD, NZDJPY, GBPCHF, EURUSD, EURCHF, CHFJPY, USDJPY and BUY pairs for USDCHF, EURGBP, NZDUSD, GBPUSD, EURJPY, AUDJPY. GBPJPY.
Basically, only 7 currencies are used in this basket trading strategy, they are AUD, NZD, JPY, GBP, EUR, CHF, and USD. Thus there is a correlation between pairs of currencies, which can be a positive correlation and a negative correlation.
If you open a short position in 7 groups of currency pairs, you will see how the position of each other, which may one pair get mining profit and the other floating loss.
Likewise in the group pairs to open buy, maybe you will see such conditions, where one or two pairs get floating profit and other floating loss. From that then the accumulated profit and loss will be obtained in each group.
How to trading with basket trading strategy?
Basket Trading System is a manual trading system, not automatic trading. The point is that the basket trading system does not use indicators, only using a demo account for trading which is at the beginning of the week when the new broker opens as a trading signal to replace indicators.
Trading is carried out by opening 7 Sell pairs on AUDUSD, NZDJPY, GBPCHF, EURUSD, EURCHF, CHFJPY, USDJPY and 7 Buy pairs on USDCHF, EURGBP, NZDUSD, GBPUSD, EURJPY, AUDJPY. GBPJPY.
Then, sort the profit column (on MT4) after the demo account has been left for 1-2 days. The Demo Indicator account will show 7 positive top group pairs and 7 lower group pairs whose results are negative. It doesn’t matter even if the total profit is negative because it is only a demo account.
The pair that occupies the top position (number 1) and the pair that occupies the lowest position are good pairs to trade.
If an open Sell pair is in slot number 1, then trade the Sell pair, and vice versa. If the Sell pair occupies slot number 14, then trade the Buy pair, and vice versa. Likewise with pairs that jump from the top 7 positions to the bottom 7 positions.
If the Sell pair jumps from top to bottom, then trade the Buy pair, and vice versa. If the Sell pair jumps from the bottom up, the Sell pair trades, and vice versa.
Tips for learn Basket trading strategy
To learn the basket trading system you need two demo accounts. One account functions as a demo indicator, the other one for opening trades according to the signal from the Demo Indicator.
Make sure you get stable results for at least three months. This means that the results are stable, for example, seven out of ten of your trade transactions are profitable. If for three months you haven’t got a stable profit, it’s better to hold on to applying it on a real account.
In this practice, use money management with a stop loss of 40 for each pair. So if you trade 14 pairs, the total stop loss is approximately 40×14 = 560 pips. With 5% risk, $ 300 equity, then $ 300 x 5% = $ 15. $ 15 is the stop-loss number.
How to calculate the lot: Stop loss $ 15/560 pips = 0.026 lots. If fractions are usually rounded down, it is 0.02. And adjust the Stop loss back to 0.02 x 560 = $ 11.2 only. Safer. The assumption is that with a 5% risk you need to face 20 x Stoploss before the equity margin call.
What next?
If the statistic is a loss of 3 times and a profit of 7 times, that’s good. Trading is not always profitable. Let’s take a look at the calculations each order:
- 1: -560 pips
- 2: +1000 pips
- 3: +2000 pips
- 4: -560 pips
- 5: +100 pips
- 6: +1000 pips
- 7: -560 pips
- 8: +200 pips
- 9: +500 pips
- 10: +500 pips
- Total profit 3,600 pips
Even though 6x loss and 4 times profit, maybe a break event. To learn the second strategy, namely basket 14 pairs, after Demo indicator is opened with 7 SELL pairs and 7 BUY pairs, according to Trader101, is like separating oil and water.
Where oil will be on the top layer and water will be on the bottom layer. In this case, all Sell pairs will be above 1-7 positions. And all Buy pairs will be at the bottom (position 8-14). If this ideal position is reached, then you can trade 14 pairs Sell all of them. Initially, the target was 1,000 pips in total. It doesn’t hurt to open a 3rd demo account, by taking the same position, but let the 3rd demo account trade until Friday, to study the movements and correlations between the 14 pairs above.
When to open position?
In this trading manual, all trading decisions are up to the individual trader. And every trader has a level of risk-taking, the amount of equity and different considerations.
For aggressive traders and open positions when 4 similar pairs are grouped in the positive area, but for conservative traders, it may take up to 5-6 pairs in groups to make an Open position decision.
Advantage of basket trading strategy
The advantage of using a basket trading strategy is that traders can allocate risk to several pairs for hedging. As a simple example if a trader only chooses one pair say EURUSD, when it is expected that the USD will strengthen then the trader opens Sell in the hope that the price will fall.
However, because fundamental factors actually make the USD weaken, any trader will lose money because the price trend is not as expected. But by diversifying the trading basket by opening up to many pairs, the risk will be minimal because the correlation between currencies provides market dynamics that allow one pair to move positive and another negative.
This means that not all positions will end in loss, so the risk calculation will be lower. The basket trading system is a smart way of dealing with fundamental news situations that result in rapid currency changes.
The disadvantage of basket trading strategy
The disadvantage of basket trading strategy is the funds needed. As this system opens many trading positions it immediately requires large margin requirements. If the capital in a trading account is only in the number of hundreds of dollars it will drain the margin level strength.
Therefore most traders who use the basket trading strategy are large institutions with experience in diversifying investments. And again for beginners, this can cause psychological conditions to get carried away with the emotions of fear, and confuse how to manage all 14 orders.
Is basket trading strategy profitable?
How will the result if you use this basket trading strategy? If you look at the performance of the Basket trading system from Trader 101, in the community conversation it shows that it was profitable at that time.
But all the final results will depend on each trader because every trader has a different psychological rhythm. It is possible for one trader to enter early, but some are still waiting for a signal which they think is more valid.
As this is quite complicated for beginners, it is recommended that they practice on a demo account for several months to ensure that traders are able to trade with good results.
Final thought
That there is no strategy that is 100 per cent accurate and profitable, traders will always face conditions that may be unpleasant. Because this basket trading strategy requires a large initial capital, it is better for retail traders who have low capital to try EURJPY and EURUSD baskets.
For beginners, using a basket trading strategy is better by using a demo account first. Even experienced traders might face different conditions.
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