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Forex Correlation Trading Strategies
By Mike | August 29, 2010
USD/CHF and EUR/USD have a correlation coefficient of -0.975. This is pretty close to -1. It means both these pairs move in the opposite direction almost all the time. To be precise 97.5% of the time if USD/CHF moves up, the pair EUR/USD will move down! Download these Forex Scalping and Correlation Trading Cheatsheets FREE. These forex scalping cheatsheets give you the best times for scalping plus five different methods of scalping. Also download the 10X Scalping System and the Hot Time Indicator FREE with these cheatsheets. Unlock the randomness in the forex market with these correlation trading cheatsheets. Master this highly profitable Magic Breakout Forex Strategy by Tim Trush and Julie Lavrine FREE!
You have this information. It tells you how much these pairs move in the same or opposite directions. Suppose you trade both the pairs USD/CHF and EUR/USD by going long at the same time. What you will be doing is in fact canceling both the positions.
You can make trade entry and exit decisions based on currency correlations. Suppose GBP/USD starts showing volatility and approaches a resistance level. You anticipate going long on a breakout. However, you notice on the charts that the other three major currency pairs are not showing volatility and moving as much as the GBP/USD. EUR/USD is not showing volatility and moving up on the chart.
Take another example. Suppose you have entered a short EUR/USD trade. You want to know whether the pair will either proceed down towards your profit target or go against you and cause you to exit the trade with a small loss.
Your EUR/USD is heading towards M1 level after having broken the S1 support pivot level. You should take a look at the pair EUR/GBP. You find that it has paused at its S1 support pivot level. It is showing signs of reversing to the upside.
Topics: Forex |
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