The 2 pair trapsA pair with no gap, or the same bet twice.
Most failed trades start before the entry, with the choice of pair. 2 traps cause a lot of the damage: a pair with no gap behind it, and 2 trades that are really 1 bet.
The mistake happens before the entry
When a trade fails, most traders look at the entry: too early, too late, the wrong candle. Yet most failed trades do not come from bad entries. They come from trading the wrong pair at the wrong time, and 2 traps cause a lot of it.
Trap 1: a fundamentally neutral pair
The first trap is the pair with no gap behind it, the chop described in the lesson on strongest vs weakest. A lot of traders stick to EUR/USD or GBP/USD even when both central banks are on hold and growth is flat on both sides. The pair chops sideways, every false start looks like the breakout you are waiting for, and each one can cost you a stop.
So before you open a chart, write one line on the gap between the 2 economies: the stance of each central bank and the direction of growth. No gap, no trade, however familiar the pair is.
Trap 2: the same bet, twice
The second trap is doubling up on correlated trades. Correlated means 2 pairs that tend to move together. A classic example is selling EUR/USD and GBP/USD at the same time. It feels like 2 trades, but it is 1 bet on a stronger dollar, made twice.
That doubles your risk on one idea instead of spreading it. If the story behind the bet changes, say the dollar suddenly weakens, both trades lose together, at the same moment, so review every position that depends on that story at once.
Count the bets, not the pairs
So before you add a second trade, check what is really driving it. EUR/USD and GBP/USD look like different pairs, but they share the same dollar side. If a new trade shares a currency and a story with one you already have open, it adds no new idea, only more of the same bet.
You can still hold both, as long as you treat them as 1 bet and keep the total risk on both at what you would put on a single idea.
Try it below. Set each position to long, flat or short, and see what you actually hold in each currency.
3 of your positions are the same USD bet.
In short
- Most failed trades come from trading the wrong pair at the wrong time, and 2 traps cause a lot of it.
- A neutral pair, with both central banks on hold and flat growth on both sides, gives you noise: it chops while you wait for a trend.
- Selling EUR/USD and GBP/USD together is 1 bet on a stronger dollar, made twice. Every trade should be a different bet.
Key terms
- Correlation
- How closely two markets move together. Trades in correlated pairs are partly the same bet.
- Risk exposure
- How much of your account is at risk across all open trades, including trades that share the same currency.
- Noise
- Information that moves your attention but not the market, or moves the market only for minutes.
- Central bank
- The institution that sets a country’s key interest rate and controls the money supply, like the Fed, the ECB or the Bank of England.