In a previous post I talked about getting to know stocks on an individual basis to get an idea of what patterns work well on each one. On the flip side many stocks also seem to mimic one another to a certain extent.

BHP and RIO are two stocks that are well known for trending the same.  Also the “Big Four” banks tend to behave the same. Below are charts of ANZ, CBA, NAB and WBC. In the last 4 months they have all done similar movements. A sideways channel over 3 months or so, then a steep drop.

(click on all 4 images to enlarge)

This information should be used as another tool for trading.  Good money management is vital to surviving the long haul in trading. If you note stocks behaving in a similar manner with entry signals around the same time, it may not be wise to trade them all. Take the banks for instance, if all four banks produced a similar signal on the same day and you entered all four trades, similar results could be expected. This could be equivalent to placing four times your risk limit on one trade. Yes, if all trades move in the correct direction it can produce fantastic results, it has the flip side of the stocks going against you, producing four times the losses.