Best Thread Correlation Trading - Basic Ideas and Strategies

[FX4Newbies]

Correlation is one of the key concepts in the forex market. This market is one whole and all the pairs are interconnected.

Very true, but I think many traders don't use it, which is why I like this thread.

 

[ChelseaR]

Very true, but I think many traders don't use it, which is why I like this thread.

Totally agree! Correlation not only helps in finding opportunities but also in avoiding overexposure and managing risks to similar moves across pairs.

 

[Simon54]

Just passing through. I like the idea of your thread.

Correlation is also great for determining when a counter-trending price action may be in process. I like to use two negatively correlated instruments...like EurUsd and UsdChf for example...if you're into FX.

Here is a correlation table that you might like. It works on Live accounts. Not sure it would work on a Demo. Version 1.2.5 is out. There may have been an even more recent version...not sure about that though.

MT4 MTF Correlation table and Correlation oscillator indicators

Share ideas, debate tactics, and swap war stories with forex traders from around the world.

www.forexfactory.com

Enjoy!

Great! Does eurusd & usdchf correlation stays consistent or does it shift a lot?

 

[FX4Newbies]

Great! Does eurusd & usdchf correlation stays consistent or does it shift a lot?

Correlation can vary. I would say off the top of my head, they may operate negatively about 80% of the time... meaning, if one is going up, the other is going down. The actual percentage may even be higher. You can also examine correlations by timeframe.

 

[Simon54]

Correlation can vary. I would say off the top of my head, they may operate negatively about 80% of the time... meaning, if one is going up, the other is going down. The actual percentage may even be higher. You can also examine correlations by timeframe.

Totally agree! Correlations can change with timeframes but it is useful to keep an eye specially during short term trades.

 

[FX4Newbies]

Totally agree! Correlations can change with timeframes but it is useful to keep an eye specially during short term trades.

Absolutely!!!

 

[NVP]

Hi everyone....I'm back !!!!

2024 saw me distracted on a variety of business projects so I wasn't as focused on my forex trading

2025 I'm gonna get more back in the Groove...

So what's new gang ?

N

 

[NVP]

Very true, but I think many traders don't use it, which is why I like this thread.

Yep unbelievable that most forex traders don't use the colossal edge provided by relative strength analysis...

Still it means more advantage for us

N

 

[NVP]

Great! Does eurusd & usdchf correlation stays consistent or does it shift a lot?

There are standard pairs that traditionally correlate closer than others.....

My early posts here some 16 years ago explain the main relationships

N

 

[Simon54]

Got it. Do you usually focus on these pairs only or others as well?

 

[NVP]

Got it. Do you usually focus on these pairs only or others as well?

I focus on any pair if it's trending to my parameters... .I will give priority to the pairs I trust more though

 

[Simon54]

I focus on any pair if it's trending to my parameters... .I will give priority to the pairs I trust more though

Agreed. We gotta stick to the one which are more reliable. Do you trust EURUSD and GBPUSD more?

 

[Xavier1]

Hi Everyone....An ambitious title indeed !

I want to consolidate as much information as possible on the subject within this
thread....the works !

Over the next few posts I will try to share my own humble thoughts/Ideas on Forex Correlation and would appreciate as much feedback and input as possible to help my studies.

I am not going to try to dictate where this thread leads, but I am hopefully that it will deliver some great Ideas, references and "Gems" for all of us to incorporate into our Trading.

To get things started In next post I am going to discuss The Major 8 currencies and how I have found they tend to interact with one another and if there are any simple rules we can learn from this to assist our trading.....

I will also attach an indicator I use to assess how the 8 Currencies are performing which I would love to develop further and expand with everybodies help

Please start adding comments / requests and of course any references or threads that would be beneficial to have linked in this one

apologies if anything has gone wrong in this first post...I hav'nt posted much before and this is my first attempt at a thread !

more tomorrow - time and work permitting !
Neil

Hi Neil, this sounds like a fantastic initiative! Forex correlation is a powerful tool, and I’m looking forward to your insights on how the major currencies interact. I’m sure the indicator you’ve mentioned will be helpful too. I'll be sure to contribute any relevant references and ideas I come across. Best of luck with your studies!

 

[NVP]

Agreed. We gotta stick to the one which are more reliable. Do you trust EURUSD and GBPUSD more?

Hey Simon

It's not really a question of trust...a currency will behave based on a variety of dynamics happening at that precise moment

We are all aware of those dynamics....and we have to decide the strategies we will use to find an edge

So in answer to your question....because both pairs include usd it becomes irrelevant in the equation

The question is more which of the currencies do I trust more in trading....euro or gbp

From a relative strength perspective my main criteria is trading the pair stronger than the other....on a weighted basis

Gbp is much more volatile than euro (check the atrs of their pairs)

So it's easy to be fooled into always trading gbp as it will be punching more pips per bar

If for example gu is scoring stronger than euro with them both being bull then I will probably be favouring the stronger trending pair in trades

But observant of all those things we learn to watch in forex .... timezones....news releases...support resistance.....etc etc

Trading forex is like fighting Mike tyson with a blindfold on and 1 hand tied behind your back.....its not easy 😑

N

 

[NVP]

Hi Neil, this sounds like a fantastic initiative! Forex correlation is a powerful tool, and I’m looking forward to your insights on how the major currencies interact. I’m sure the indicator you’ve mentioned will be helpful too. I'll be sure to contribute any relevant references and ideas I come across. Best of luck with your studies!

Well there's about 15+ years of posts following that one on here so enjoy !!! 😉

 

[NVP]

A quick update on what I do these days when trading forex

Firstly I heed to be respectful and mindful of the mod crew here.....they do a great job 👍

I've been banned many times on t2w over the years but probably for good reason .....and also many people have been banned from their posts on this thread.....

So I can't talk about certain commercial areas of my work over the years so I will stay focused on what I do daily and not go into detail

I use strengthmeters derived from my Free ones I've shared freely here for many years

They do the same thing as the original fxcorrelator but are slicker and much more customised and weighted to certain conditions and parameters for me

I still trade trend predominantly....and my entry style varies based on my perception of the market.....

I have a few variations on entry....from all out HH or LL breaches ....to pullback entries based on the traditional stuff most traders use .....it depends.....

there is no best way to trade..you have to find your niche and edge .....then spend years getting it better

N

 

[Simon54]

Hey Simon

It's not really a question of trust...a currency will behave based on a variety of dynamics happening at that precise moment

We are all aware of those dynamics....and we have to decide the strategies we will use to find an edge

So in answer to your question....because both pairs include usd it becomes irrelevant in the equation

The question is more which of the currencies do I trust more in trading....euro or gbp

From a relative strength perspective my main criteria is trading the pair stronger than the other....on a weighted basis

Gbp is much more volatile than euro (check the atrs of their pairs)

So it's easy to be fooled into always trading gbp as it will be punching more pips per bar

If for example gu is scoring stronger than euro with them both being bull then I will probably be favouring the stronger trending pair in trades

But observant of all those things we learn to watch in forex .... timezones....news releases...support resistance.....etc etc

Trading forex is like fighting Mike tyson with a blindfold on and 1 hand tied behind your back.....its not easy 😑

N

GBP volatility can be tempting. But have you ever find EUR more predictable for clearer trends?