I noticed alot of traders new of course but also veterans do not know their basics that well. I myself, needed to get everything a little more clear in my head, there are still a few grey area's, but after making (and after you read) this idea, it will all be much more clear. The TradingView community, in october 2017 consisted of over 3 million monthly active users, and on average 3300 new users joined daily (0.1% daily growth taking the active user number). In Q4 2017 - 2018 when crypto exploded a massive wave of people joined this site (I joined in december 2017 myself), I assume most were new. Crypto now is the biggest chat on this site so we can assume there were more than 3300 daily for crypto alone when BTC accelerated after breaking $1000 $3000 and $5000. Of course there are certainly alot that just invested in crypto and now lost their money with BTC down back to 3000 & alts down 99%.
So, what I am trying to say is there are alot of new people, and in particular crypto exclusive people. I think there are literally millions of people on this site that could use this. The SEC & CFTC AND senators included by the way, I am not sure they have this clearly in their minds, you know what I mean if you have been following crypto regulations and hearings the past year...
And if you are a crypto exclusive trader (I feel sorry for you when crypto consolidates half the time), this might shed some light and make the other assets less scary.
Before I start digging in, if you were looking for opinions on the eurodollar sorry I do not have any. It is "kind of" going nowhere. ZigZagging randomly, maybe there is a way to trade this, I do not know it. I only join trends or go agaisnt trends if the conditions are right.
(1) Looking at volumes & average volatility. Ordered from biggest to smallest.
Cash ==> Daily traded volume around 5 trillion $. EURUSD a little over 1 Trillion. USDJPY is slighlty under 1 trillion, then GBPUSD at around 500 billion, then 5 between 100 and 300 billion (AUDUSD 250+, USDCAD 200+, USDCNH 200-, USDCHF 200-, EURGBP 100) , two dozen between 10 and 90 billion, and then "the rest". Honestly The big Forex pairs are not correlated (EURUSD & USDJPY). Pound and Euro move quite together. It is complicated.... DXY (usd index) looks alot like EURUSD as expected... The U.S. Dollar Index is calculated with this formula: USDX = 50.14348112 × EURUSD-0.576 × USDJPY0.136 × GBPUSD-0.119 × USDCAD0.091 × USDSEK0.042 × USDCHF0.036. Outdated if you ask me. I do not like it very much. I should make my own us dollar index. I think I will! Typically moves about 0.5 to 1 percent a day.
Fixed income ==> Daily traded volume in excess of 700 billion usd (for the US alone I think). The biggest ones are US treasury bills 10 yr and 30 yr correct me if I am wrong, I think they do volumes of about 50 billion, really not sure. I tried looking at the german euro bund but I do not really know much about it. Better stick to US30YR and US10YR. Careful they are not as safe as they seem; wide moves happen. Prices are more expensive there are very few retail traders compared to other assets. Mostly institution traders buying/selling for millions at a time. US30Y typically moves 2 to 2.5% a day. US10Y is the same.
Equities ==> Nyse + Nasdaq represent a little over 1/3 of the world stock capitalisation (maybe less and less now that the bubble popped) and traders are much more attracted to US stocks than the rest of the world. I know these 2 have a combined volume of 250 billion, going to assume the total worldwode is around 500 billion. Less than Bonds in any case. The indices might be big, all I know is the e-mini S&P 500 trading volume on the CME is 150 billion usd! In total capitalization the US bond market is bigger than the US stock market and I heard their volume was bigger too, but it does not feel "bigger". And treasury bills have less volume than the e-mini. The S&P 500 typically moves 0.75 to 2% a day, it varies wildly. Different stocks have different numbers. But usually 1 to 5%.
Commodities ==> 1- Precious metals. Gold Silver Platinum Palladium. Gold the biggest one, and its trading volume is of 125 billion (estimated, daily). Gold typically moves 1.5% a day. Other ones move 2-3% a day. Aaaand I just noticed palladium went above ath and is in a massive bull run since summer 2018. Gold has been going up since then too. 2- Energy. Oil (Texas Crude Light & Brend), NatGas, Heating Oil. Oil futures have a volume of 35 billion with the CME. Oil typically moves 2-3% a day, NatGas 3 to 5%, but sometimes 20% in a day as you might have heard ;) 3- Agriculture. Soybeans (5B), Corn(2B), Wheat(1B), Cotton(900M), Coffee(600M), Sugar(500M), Cocoa(300M), the rest is irrelevant. Soybean futures typically move 2% a day, Corn 2-3%, Wheat around 3%, the rest all about 2-3%. 4- Industrial metals. Copper Iron Ore Aluminum. Copper futures have a daily volume of 5 billion. I know nothing about Iron, but it is defenitly correlated to copper. Copper typically move 2-3% a day.
CryptoCurrencies ==> The NEW one! Wouhoo so exciting! Well no not really, just another headache for regulators that have been trying to decide does it fall in the commodity or security category? (How about none? How about you create a new commitee crypto specific, maybe they are waiting to see if crypto is still around in 5 years). Daily traded volume in 2018 was 30 billion us dollar. 10 billion for Bitcoin, 20 billion for altcoins. Clearly the smallest asset. Could grow bigger could disappear. Would be a shame; What do we need it for thought? Internet money and a way to do crowdfunding & buy shares of a company (tokens)? If it is not a super useful innovation, we do not need it. There have been alot of great innovations, but that were not very useful or did not really improve things that much so they just vanished. This asset is "pending", it could simply disappear. Well it is not that bad, still plenty other things to trade. Probably the best asset for stinky newbs (:p). Small accounts are possible, very small, fees are low on most exchanges if you want them to be, open 247, there are no gaps, no slippage (well if you use Bitmex). Bitcoin typically moves 5% a day, but it is like with stocks it varies greatly. Ethereum moves the double of Bitcoin, and altcoins vary. Some can move ALOT on average, they are just scams and going to die thought, so whatever. Most successful alts are the results of pump and dumps. I dare you to tell me no, I was in the discords right before it started... (did not participate I never was in the mod club or tried to be).
Property ==> In the US the real estate transaction volume in a year is about 400 billion $ (much lower around 2009 :}). Is there a way to trade this? Via funds indexes or something? This is just for investing.
(2) Correlations *** Forex
EURUSD & DXY are the same chart...
EURUSD & USDJPY not correlated. Maybe a tiny bit, but really not that much.
EURUSD & GBPUSD very similar charts especially recent years.
AUDUSD & EURUSD not exactly the same, but the trades will be the same. Trading both is redundant.
EURUSD & USDCAD sometimes more bullish sometimes more bearish, but basically the same moves.
USDCNH & EURUSD. Well in between, I don't know. USDCNH & USDJPY. It is looking pretty similar here.
USDJPY & USDCHF. Kind of the "safe ones". They often move together, not always.
EURUSD & EURGBP. A Euro strong against the USDOLLAR does not mean it will be strong agaisnt the pound.
EURUSD & EURJPY. Not that much correlation in my eyes.
USDMXN & EURUSD. At times it just mirrors it. Really no personality Pesos.
Then most other pairs just follow the bigger one, like when the AUD falls against the dollar, all AUD pairs fall from experience it it what I noticed. I did not check all pairs like USD versus RUB? I do not know, but I do not want to check everything and get overwhelmed. These 4 are good: EURUSD USDJPY EURGBP EURJPY they represent most of the currency market action. The rest is all a mirror of one of these 4. I will have these 4 in my watchlist & then there are about 30 important pairs with a volume of 10 billion or more I can look at, maybe I notice something, but most focus will be on the 4. Maybe if I want to short EURUSD I might notice AUDOLLAR is heavier and short that instead... 4 is good, not so much I would get overwhelmed.
*** Bonds
30 YR and 10 YR treasury bills move the same as far as I know. Then there are so many. Why bother? For my part I am not trading that (yet), but I will be putting US30Y in my main watchlist & keeping an eye on it and hopefully learning more about that financial product.
*** Equities
There are so many stocks. Hidden gems, whatever. Not worth my time. Not a big stock expert,
Almost everything follows vaguely the big indices Tech stocks are all moving the exact same way (FAANG), stocks from the same area move the same (all video game companies had the same issues they are all down 40% more or less). I do not know the different industries well, I know it follows the general market direction, I do not really know when it does and when it does not, the difference in every industry. So unless I get to know more which will take a while, I only watch a major indice, the Dow because I want to, could be the S&P same story.
I cannot tell you more on exactly what the correlations are and how "close" they are sorry.
*** Commodities A/ Precious metals ==> Trading gold only is enough. Or just watching it. It leads everything.
B/ Energy Might as well only watch Oil and see it all as one big thing, to keep it simple.
C/ Agriculture
Wheat and Corn, regular carb stapple foods and Soybeans, all the same (All CME). Cocoa does not seem correlated to anything? It has some delay on the rest? Might be interesting to look at weekly chart once in a while... Cotton Coffee Sugar (all traded on ICE) look similar...
Just going to have Soybean futures in my main watchlist I cannot be bothered with the rest, trying to understand the risk, the is it correlated the what if? Can still look from time to time for opportunities...
D/ Industry metals
==> Copper, the rest is just copy pasta
*** CryptoCurrencies
There are sooo many crypto's. It's all the same story thought. Fortunately, most of these scams will die. If 10 to 100 remain it would be good. All the scams and various ponzi's have created alot of confusion with people (such as the SEC). Trust me the reason the SEC have waited and waited and waited is because there are so many different crypto's doing different things they have no idea how to categorise them. They tried starting with the biggest ones first which is what they should do but they did not produce much really... I think they are just waiting for the bubble to finish popping and most crypto's to die. The SEC wants to prevent dumb money from getting scammed and they have been putting out a fake ICO site and heading warnings, they do not want to do nothing.
===> I only watch Bitcoin. The rest is irrelevant most of the time (for trading purposes). Might change in the future. Sure I could look at other crypto's "oh Ethereum is more bullish my edge is better here, oh Litecoin has started going up early before the rest" whatever, it's just adding chaos randomness. Can't be bothered. I tried, not worth my time.
(3) Conclusion
I hope you enjoyed this post. I enjoyed making it.
My watchlists are as follow: A main one I use all the time and look at 4 hour chart with * EURUSD USDJPY EURGBP EURJPY which covers most of all Forex * GOLD OIL SOYBEANF COPPER which covers most of all commodities * BITCOIN * US30Y * DJI
A watchlist for Currencies with 30 pairs I might rarely watch from time to time looking for potential swing trades.
A watchlist for Commodities and Crypto with half a dozen commodities and half a dozen crypto, same logic as the currencies watchlist. Daily chart or bigger only.
A watchlist for ~12 indices and 90 of the biggest stocks in the world (mcap over 50 billion usd). Only for backtesting (for now).
A watchlist with 1200 stocks I never use but might look at sporadically, for education purposes.
===> In the end, I mostly trade Bitcoin + 4 FX pairs + 4 Commodities, and am researching more FX pairs & commodities, might have some opportunities. I can be more picky with my trades if I watch more, but at the same time it adds confusion and everything. Also learning about stocks and bonds little by little. Ignoring crypto other than Bitcoin and maybe ETH for the time being.
In any case, for every of the 6 assets, you are good with 4 symbols each. More gets redundant and makes it complicated. Just go 4 each and separate them clearly, make it easier ;)
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I have been thinking about this, and if I had advice to give stick to max 2 classes unless you have a team working for you.
Each class has plenty of different instruments. There are 10 big currencies and dozens of small ones, 5 big commodities (Oil Gold Natgas Copper & whichever agri future is the most traded one at any given time) and dozens of small / medium ones, 5 big indices (2 for the US + GER FRA UK as well as asian ones if you are in Asia). Etc. It gets overwhelming even if you are swing trading and looking for the few ones that are volatile at the moment.
For crypto traders I would definitely recommend getting out of the bubble/echochamber and looking at one other, what are crypto traders doing when Bitcoin sits at 3000/6000 for months and all alts are sleeping too?
But imo really 2 max. 1 symbol of each group does not work either because I think you need to spend time on the whole group, meaning trading 3 commodities is easier than 1 FX + 1 Crypto + 1 Stock that work differently... Looking at too little is bad, and looking at too much is bad too. You'll always be chasing, or getting overwhelmed. It is just realistically not doable. In my opinion. I do not see how someone by himself can follow everything.
This guy I follow Dan "TheChartGuys" he basically has a watchlist of: - Stocks: Canadian MJ and US MJ, S&P 500, Tesla, and half a dozen stocks & indices & stock ETF's - Crypto: BTC ETH LTC + the top 3 movers typically - Commodities: Gold Oil Natgas
So a few, he is diversified always looking for opportunities, he did not trade crypto for weeks+ when it was not moving and when it does he takes plenty of trades. This is a good example. He gave FX a try but hasn't insisted. So mainly stocks + a little of crypto & a little of commodities. No currencies (except the us dollar indice but that's because he is into stocks), no bonds and all that stuff.
These are the 2 I am focussing on:
I look a little at the stock market, as well as crypto, but I am trying to cut back. Good to spend some time understanding those, but no point spending too much time... Not sure I want to keep trading equities. Will keep trading Bitcoin simply because the whales make it so obvious, and the small fish herd is pretty obvious too so it does not take too much thinking (talking about the big moves 3-4 times a year).
Big focus for me on Currencies, Commodities (all 4 subgroups), and a little bit of crypto (only Bitcoin tbh, max 5 trades a year, only the big swings).
I can only recommend: 1- Do not get married to 1 asset class 2- Stick to a "manageable" list of interests, try 2 asset classes, 3 max.
They do work the same. Alts work like Bitcoin they just follow it even. Strategies that work with 1 commodity work with all of them as far as I know, and they aren't that correlated, which is awesome! Stocks all follow the same logic, go up the same way, earnings are important, gdp global economy etc these are things you have to look at just the same for every stock. Currencies all work the same way too, they do not trend for years, they are controlled by their central bank policies etc...
Ray Dalio kindly explained that having up to about 10 positions on uncorrelated products would reduce risk dramatically while making you money. You return to risk can be multiplied by 5, that's alot. He says to go for 15 to 20 diversified good income streams. I think this is too much for 1 person even if those are long term investments. I would say go for up to 8 trades if you hold them for 3 months or more, otherwise 1 week to 3 months maybe 3-5 ones + the occasional 1-2 quick ones a week. "There is no great 1 best investment that can compete with something like this" - Ray Dalio.