Best Thread Correlation Trading - Basic Ideas and Strategies

[NVP]

Boilersuit - what an excellent idea !

Hey Boilersuit !

my main correlation indicator (the corrie) is still work in progress (so nothing released on this thread) and as you rightly say is 100% currency focused (G8)

in earlier posts (#102-104) I alluded to integrating more information into corrie style charts for Stock indices (mainly the Dow30), Gold (which is a currency in some ways just pegged to the Dollar)and Crude oil......Metatrader has the other main global Stock indices but is sadly lacking in commodities and Bonds Department so thats all we have to play with....

the Thead has stayed in currencies as no one had pushed me/us on that side (and I am still focusing on fine tuning the currency corrie)....until now !

so everybody lets get to correlating...anyone want to open with the correlation patterns out there ?

my most advanced draft on this side is a "G9" corrie incorporating gold into the main correlator mix as a 9th currency - valued against everything else..........I am trialling it but not allocating enough time at present
as fine tuning the G8 corrie first

N

 

[Boilersuit]

Hi NVP
Thanks
Sure I'll be checking in and contributing as best I can.

1)Please note that the MT4 brokers are getting much better at displaying all the key intermarket drivers.There's Broco, InvestorsEurope , Alpari Russia etc etc(I'm not nec recommending them as brokers).But Inv Europe has USD, EUR and JPY treasuries, plus gold and oil.Plus the key indices - so
there's certainly no shortage of data ( however accurate it might be).

2)Someone else has developed a way of allowing your own events and data ( eg interest rates, Non-farm payrolls) to be plotted on MT4.I'll dig out a link if needed ( but maybe thats a "Stage 2")

3)I'm sure a "currencies only" indicator is a nice "string to the bow".

BUT, A DROP IN USD DOESNT NEC MEAN THAT IT IS FLOWING INTO OTHER TRUE "CURRENCIES".
Dollars might buy gold, or S&P or oil. But that won't necessarily mean there is a directly proportional rise in CAD etc.

4)I like to say "this session is risk seeking".Then look at the key drivers/indicators for that.
EUR and AUD up, with USD and JPY down isn't always enough IMO.
IF we have a consensus with Dax, S&P, AUD-CHF, US_treasuries,then things are looking better.Less likely that we'll be whipsawed etc.

5)I also try and think of correlation moves at key times of day eg US open, Euro open, after news events.Its not just consistent over days.
Also sentiment and events during the day.

So come on geniuses of fundamentals and coding, your forum needs you! :cheesy:

PS maybe someone can tweak one of the cluster indicators that exist, so that it could accomodate commodities etc, for us to be going on with?

 

[NVP]

interesting points !

Hi B

I like what you are saying ...............my currency plays (at present) do not look for any "support" from outside sources

so when I see the Tag team values falling (USD/Yen) then i just go to the EUR, GBP and AUD currencies and see who is benefiting the most with negative correlations...and chose the biggest mover.....(i tend to ignore NZD,CAD and swissie because of the spreads and other issues re reliability)

Sure I would like to see commodities, Gold and Stock indices rising in support of the Tag team falling but hav'nt got that advanced yet...........potentially we could end up with to many caveats/conditions to make any trade ?

hmmmmm!!
N

 

[Boilersuit]

Pure corrln is good, I find.But the risk is that we are saying “I’ll buy this because its got more expensive, therefore it will continue to do so”.So we need filters IMO.

In an ideal situation, I’d be doing the following:-

Using a cluster/ correlation indcator that measures trend eg , another that measures range move.
Eg CFPp.mq4 (for trend)and Ccp_v3_ROC_Diff_MTF.mq4 (for range)

However, these only work on a basket of currencies not commodities etc, I believe.
I’d also use a predictive indicator in the cluster.
Then I’d check out the “best pair’s” indcators and news etc etc
Finally, we could classify where the flows were going in each session or part of it.

Yes it could be many caveats/ conditions to trade.But only seconds to survey them all.

Correlation/cluster analysis I think assumes a type of balance between buyers and sellers.
But this can alter when outside factors become involved eg central banks, commodity sellers etc etc
To me, that’s part of why currency cluster/correlation analysis sometimes, but doesn’t always work as we’d like.

Hence my thoughts on expanding correln analysis to analyse what is actually driving the currencies.

 

[NVP]

sounds good.........

Hi B

aahh - I see the classic ccps and cfp indicators ...these are real good !

ok ...........ive played in the past with throwing every available indice onto 1 indicator which shows their individual relationships to 1 standardised Ma setting (say a 20MA setting where when the indice line crosses the Zero it is either going above or below its 20ma on the standard charts....

clumsy but useful if you are looking to consolidate/minimise charts - let me try to drag it out of its closet wherever it is

N

 

[Boilersuit]

1.Yes those inds are terrific. But I'd love someone to try the above modifcations

2.Its not just the individual index correlations or indices vs their currencies.

I'm think more Eur-Yen up and S & P up.
Dax up - Yen down - Dollar down.
S&P down - US Treas up

etc etc.There are many different types of days.
But the bottom line is, I wouldn't buy Eur/ Yen if S & P and Dax look weak as hell etc etc

Nor would I wanna buy on correlation analysis if there's an "external factor" like central bank efforts - as Pipinit says.

But once we have say 5 or 6 "mini systems" working together ( eg fx correlation, intermarket, awareness of central bank intervention etc etc ), I believe we can have a MASSIVELY profitable system.

 

[NVP]

1.Yes those inds are terrific. But I'd love someone to try the above modifcations

2.Its not just the individual index correlations or indices vs their currencies.

I'm think more Eur-Yen up and S & P up.

agreed...the Yen traditionally hates the Dow ....although these days the Carry trade has been arguably extended to the GBP and USD as well ?....also the yen is an interventional currency so I would get nervous on the opposite play above at key Yen prices

Dax up - Yen down - Dollar down.
Yep..........any reason why you have USD here and not on S&P call above ?


S&P down - US Treas up

hmmmm.....its been a little messy recently hasnt it with QE.....Would this be Longer Term Tres specifically 10-30yr ?


etc etc.There are many different types of days.
But the bottom line is, I wouldn't buy Eur/ Yen if S & P and Dax look weak as hell etc etc

Nor would I wanna buy on correlation analysis if there's an "external factor" like central bank efforts - as Pipinit says.

But once we have say 5 or 6 "mini systems" working together ( eg fx correlation, intermarket, awareness of central bank intervention etc etc ), I believe we can have a MASSIVELY profitable system. I totally Agree.....and exactly what I have wanted to achieve on this thread from Post 1 !

Hi B

see in red above......one other comment...do you stick to pure currency trades based on the other market signals or do you stray into trading those markets ?

the reason I say this is that most external signals will indicate the Bias of the Tag Team (USD/Yen)...but that still leaves us the lucky dip on chosing the other side of the pair to trade..........

this is warming up again nicely....now wheres JRPlimited ?

N

 

[jrplimited]

Hi N and everyone else,

"...this is warming up again nicely....now wheres JRPlimited ?..."

Here! I've popped in for a wee while and will be coming back sometime tomorrow when the dreaded nfp thingy is causing usual mayhem to expand upon what I've been doing on the correlation back slash deviation ideas if thats OK with you.

Meantime great stuff from Boilersuit, but be a bit careful when thinking futures as these instruments tend to gyrate wildly (ie bar ranges can be large), although if smallish time frames are the target trading arena then SLs and TPs can be controlled.

BTW; Got another (surprise, surprise!) invite to CC webinar this afternoon at 17:00 hrs UK local, this time its to "see" how well CC has been doing historically. I noticed from the latest CC splash screen they are now incorporating a multiple time frame directional biased indy - real old hat stuff there - so its going to be interesting to see how they use that. Will let you know if anything material crops up like price slashed to a tenth..... Just saw a pig fly past my window!

Trade well and regards,
Simon.

 

[NVP]

thanks !

thanks Simon !

PS - I have dropped a visitor message to you - have a peek please...........

meanwhile.........

IMPORTANT ANNOUNCEMENT

To everybody interested I (NVP) am running a Webinar soon thats nearly sold out so please book now....I promise you it will be even bigger and greater than the CC code Webinars

http://www.trade2win.com/boards/for...256-dont-buy-correlation-code.html#post964262

N

 

[Boilersuit]

Hi NVP thanks for your comments.
I try and think more in terms of a multitude of drivers rather than absolute correlations of the type “risk seeking vs. risk averse days” etc

1)I agree- the carry trade landscape has changed.Certainly USD and JPY on the one side.
Ofcourse GBP interest rates are very low, its just I don’t add it into my analysis in this area.
And yes, Yen intervention is another factor for us to contend with.

2) Dax? Well it is active at the start of my trading day. So a weak Dax may warn of a weak Euro vs. Dollar. S &P actually often works pretty well with Eur-Yen - but we can’t look at it all in “black and white” - so many factors to consider, I think.

3)Yes, I remember US-Tr and S&P as far back as the 1990s. To me, it’s just one component of “intermarketry”.We need to (try!) and be clear why sometimes there is an inverse linkage, and sometimes there isn’t.
I’m using the 10 yr treas, but again bonds is a “market within the market”…

---------------------------------------------------------------------------------------------------

Well I was in futures before fx. I just didn’t buy the idea that the market’s “mind” prices currencies independently via charting and not intermarket drivers. I’m not looking to actively trade futures for a little while, but it is the “natural progression”.

Re the other side of the tag team, yes that is the golden question.I’d say rather than a few rules, its actually quite a number, giving numerous patterns. But still very manageable once there are models in place.

Hi JRP, yes we have to manage volatility and false signals etc
How we measure the “driving force” and put it into our models is a key factor, I think.

 

[NVP]

Interesting !

Hi B

agree with all comments and love the term "Intermarketry".....never heard that before !:smart:

one of the things you will find frustrating about me is that I rarely talk currency pairs in correlation terms unless its just pulling the trigger....the FXcorrelator I use day in day out has conditioned me to think about currencies as standalone entities and that chosing pairs is simply matching a riser to a faller (or vice versa) !

in this context

1) above.......yes GBP has been touted a little as the new carry trade but I agree with you that its a little flaky in substance just because it took a hit in last few months !

for me the Carry trade was "invented" with the Yen over many many years and USD got into the game much more recently.........this tag teams for me are the true barometer of Risk plays and they dont do badly in correlation to the Vix

on this front as part of our ongoing work I would love to get more specialised terms for some certain patterns and combinations.....for example Risk play is such a generic term for certain things happening that its to non specialised for my taste....

2) Weak Dax = weak EURUSD........but in my world which of these currencies is really driving that weak pair signal...hmmmm ! also Strong S&P = Strong EUR/JPY pair........again which currency truely is driving it and under what conditions ?


3) yep agree.........I did mention non currency related correlations in the early thread but to be honest got no takers .........theres plenty of potential strategies I believe on non currency markets

intramarkets : -
spreads and divergencies on diff dated in Treasuries
Spreads/divergencies on Stock indices (ie Dax vs FTSE100..or NK vs everything)
commodity divergences (certain commodities vs the lot or Gold vs Silver)
and so on.......

intermarkets
Gold vs Crude vs oth commodities vs Stock indices vs Treasuries

and then of course the many combinations of above with currencies.......Joe ross produces some nice updates on these non currency strategies (and much more) with his experts focusing on divergence (o/b, o/s) and advisign when to trade into the convergence.....

I'm also a big believer on timeframe correlations within currencies and the fractal nature of markets.......I believe that as long as you differentiate your TF's enough (i believe X6-X10 is best multiple on MA's or TF's) you will always see different patterns in each chart and therefore easily can be short and long at the same time utilising appropriate weightings of capital invested :-0

anyway this is getting interesting !
NVP

PS - pipinit - contact me today if possible....

 

[NVP]

a Summary of the Thread is coming !

Hi everyone !

Since I see some resurgence in Correlation interest (courtesy of mr Fielder nes pas ?) and new blood coming in I am going to try to summarise what the first 250+ posts have said and the key links for correlation research (will take 1 minute then hahahahah)

Theres also some new links coming from some my extracuricular activity with Alan , Ivan and ross who have appeared regularly in the past here....

I apologise to those waiting for magical indicators and holy grail products as they wont appear here....(theres master marketeers already out there selling those to you)

I will be sending the corrie to those who have kindly requested it soon....... but the Training and administration platforms necessary are not in place yet and I want it to be professional (which will make a change )

Eventually I would love to have a private forum specialising in Correlation strategies with plenty of experts and mentors on hand to make it a very profitable experience for members (a bit like a James16 but on correlation matters)

oh well........thats the future......back to now and i'll dig out the links and the summary
as promised .....will arrive next week as tied up this weekend

cheers
N

 

[NVP]

The Source of the corrie

Hi Gang

hmmm - Boiler suit reminded me of these in a recent thread ....

if you do seek indicators , everything I have developed in the last year or so (and pictured a lot on this site) sprang from ideas originating on links below......Ferrux and TPO (legendary programmers) developed their ideas from this (I think) and there are many many versions and adaptions out there in the cosmos

just google forex basket , clusters multimeters correlations etc etc and start reading and reading and reading

these are just currencies of course and do not integrate other markets into equation....

http://articles.mql4.com/422

http://articles.mql4.com/484

more to come next week in summary

Regards (and thanks Boilersuit for reminding me in earlier thread !)
N

 

[NVP]

Thanks Lance !

Lance has been a mentor and inspiration to me for a long while...so this is an honour !

Lance is a price action guru and his Free (yes some us are still working for free) Newsletter is packed with excellent educational material so take a look if you hav'nt before....

http://www.yourtradingcoach.com/ :smart:

Welcome from there anyone who is interested....dont let the lighthearted approach fool you in this thread....we are deadly serious about where we will be taking this stuff in the future

I am nearly ready again for more guinea pigs on my humble creations (as seen in the earlier posts) - but really correlation is a vast subject and everything I am experimenting with is out there already ....you just have to find it !

ask any questions and the regular contributors here will try to help you or point you in the right direction.......im also publishing a summary piece of thread next week

Best Regards and thanks again to Lance for his invaluable personal support and advice in the last few months

Neil

 

[NVP]

nice moves last 10 mins..........

heres the corrie on 1min and 5min plus a new emerging star.... the indice correlator

some nice action this afternoon I must say.........

N

 

[NVP]

more links to review

Hi everybody....

here are some more correlation linkages that I have been sent by one of the main contributors to this thread (thks mate ).....we bring everything to the table in this thread so have a look if you get time........the CCYX is a similar tool to my correlator but as I have discussed in the past most of these indicators do the same things.....its the extra confirmations you then choose to integrate with them that make the difference between trading success or failure !:smart:

N

Actually this is one is much to shiny and impressive ......NVP pull the link...pull the link !!


http://www.forexfactory.com/showthread.php?t=163158


http://www.forexfactory.com/showthread.php?t=113181

 

[NVP]

The corrie is back !

stung into action by the sexy youtube video above my corrie has decided not to be outdone

nice action this morning and hope you have been making money
(I leave off CAD,NZD and Swissie on most of my faster TF's to ease the chart congestion)

I want to release a limited number of corries next week to people willing to test it and post results, comments and discussion items on this thread

contact me at [email protected] to register your interest - if you have contacted me in last 2 weeks I have you already on radar so do not send again...

N

 

[NVP]

Watch the EURO.............

hmmm.....Euros holding up relatively well on very short timeframes.....

N

 

[NVP]

the AUD is looking interesting as well 12.25pm GMT

look..........as the Yen and USD are starting to fall again (fingers crossed) the AUD is now not following them and is now potentially rising.....

decoupling going on....?

buy Euro / AUD.....sell Tag team

N

 

[NVP]

Doh !

A little frustrating..............Aussie is now obliging with a gradual rise but the Tag team have decided to follow it !

by removing the CAD , NZD and the Swissie on this chart it gives much more visability on the big 5 for me....then all you've got to do is figure out whos correlating with who !

or more importantly whos moving with the Tag team..............

the best signal on this is if you start to get 2 currencies moving same direction as the tag team (ie 4 moving in together) its a lovely trade then on the 5th currency vs the USD......in fact the GBP (red) is actually starting to move agains the other 4 in this example now

there are so many variations on this that I dont know where to start....thats why the guinea pigs are going to do it for us !

PS - I use the 1 and 5 min charts to test and comment on because they offer the most immediate real time variations and activity than longer TF's (Derrr yeah NVP !)

everything you see can be used in any TF

N