Best Thread Correlation Trading - Basic Ideas and Strategies

[Ingot54]

Housekeeping for Correlation Trading

Ingot54.......you wont understand this comment

its a famous one from a UK insurance commercial uttered by the colourful producer Michael Winner ! ..a kind of catch phrase !

GBPJPY

anyway I can 100% confirm you will need plenty of Vegemite flavoured Valium if you sit on this gunpowder pair......always remember you can calm it a little by going

Yen/Euro
or
GBP/USD

to introduce a lower Volatility currency to the trade (Yen/Euro is nice as I like the Yen more than any other Currency in the Family and it will slice through the Euro on its retrace without the whipsaw you may will get on GBP/Yen combo)

as for faster MA's...........ai yi yi !

Great Stuff and thanks for believing......!
Neil

Vegemite is the Oz version of crack cocaine! It's loaded with the B-Group vitamins - rocket fuel on bread!

Anyway - before I ht the sack for the night it's after 1am here ...

There are a couple of things I would like to throw into the ring:

1) What favourite indicators do people use, which may have a role in this kind of trading, if any? I believe that eventually traders of this will not need any indicator other than the FXCorrelator. Personally I like to use the 5.3.3 Stochastic. After trying the MTF stochastic experimentally (see attached chart) I decided it was not appropriate for this kind of trading, and opted for the simple stochastic.

As mentioned in post # 79 I use the MTF (Multi Time Frame) ADX indicator as well. This indy will show you the trend on any TF of the particular pair you are trading, so you can instantly see the trend on the other TF without flicking over and back from differing TF charts.

2) What role would Support and Resistance play in this trading method? I can see that it is easily possible to trade without using them, because the FXCorrelator on the lower TF shows any divergence quite quickly, and traders could take their cue from that. But I was thinking more along the lines of knowing where a trend would be most likely to strike a snag, and be prepared to hit the "CLOSE TRADE " button at the first sign a trade was low on petrol!

3) Are there any other things that readers are unclear about right now?

I have been going back over earlier posts, and surprisingly I am finding some of my questions are already answered in the things Neil has said. At the time he posted, I simply was not open to understand the meaning, but it is clearer now because of the background we now have.

I suggest readers with an interest might gain much through re-reading some of the earlier posts. And please ... put your hand up to ask, or simply jump in to demo trading, and have a go - I think a lot of traders would be pleased to throw away all the collective indicators and garbage they have accumulated over the years ... that is my reacton to what I am finding.

If it works, why trade anything else? This is the first time I have found anything as easy ... and fun ... in trading the FX markets.

Best wishes

Ivan

Here is one of my earlier charts ... one correction - the chart annotation says "10 EMA" is should read: "10 SMA". half of the indies on that chart no longer need to be seen. The FXCorrelator can be on its own chart, and all I need are simple 5.3.3 stochastic and the MTF ADX (trend) indicator. This leaves heaps of screen real-estate for price action.

 

[NVP]

Awe Shucks ingot54 !!!

thanks mate..........glad you like it !

naturally everyone will assume we have been bosom buddies for many a year the way this is panning out..........but let them talk as we know the truth !

I will try to go through some of the questions that Ivan is throwing up + review the other excellent additional indicators /thoughts he is bringing to table in next few days

I suppose my first knee jerk reaction to most of this is as follows

1) its a nice tool for watching 1,2 or all currencies behaviorisms and how they are interacting....across any MA and any TF...In fact once you are familiar with it its great for summarising /looking backwards as to how currencies have performed over periods of time (instead of a 5 page summary showing just individual Key pairs and their activity)

2) can it be traded on its own ?.............yes it can, but you really need to be on low deltas to get nearer to the actual price action.....in fact on the 1and 5mins on say a 200/1 setting you can watch the Currencies actually moving/bobbing around.....

use just simple cyclical trading techniques watching for resumptions of trend after retraces or just good old fashioned break thrus of previuos minor support/resistance levels...also use 2-3 charts with diff TF's as mentioned in earlier Threads

3) I think its best use will probably be for Traders to have it as a co-pilot and help them time trading entries....aligning this to whatever comfort blankets/systems are their Favourites......i'm a price action fan so I would look for favourable price action on a pair I Identified on the FXCorrelator re signals being seen....

sorry - gotta go now as have a meeting I need to go to at home tonight

(sorry - I promised loads more on an earlier posting so i am aware I am behind the game....)

more tomorrow and thanks again Ivan for the help/work.....
Neil

 

[NVP]

Things i need to be mentioning re the FX Indicator !

Ivan

Here is one of my earlier charts ... one correction - the chart annotation says "10 EMA" is should read: "10 SMA". half of the indies on that chart no longer need to be seen. The FXCorrelator can be on its own chart, and all I need are simple 5.3.3 stochastic and the MTF ADX (trend) indicator. This leaves heaps of screen real-estate for price action.[/QUOTE]


Hey Ivan - all

I will need to follow up quickly on some things here re how the lines behave based on certain MA's etc etc

just quickly.....in lower MA's (sub 100ish) if 2 currencies are running parallel the higher currency is actually still gaining in price verses the lower one on chart....they are not movng at parity......(eh???)

this is a heavy one to get and I apologise as this is not so apparent on the MA 200's I use...........I wanted to say this before someone says its all cr*p re the info I have given so far..........

really gotta go now but more tomorrow !!!
Neil

 

[NVP]

Focussing on ther Indicator at moment

Hey everyone......Good morning !

well technically....here in West Sussex at 6.07am its blowing a gale and heavy clouds with plenty or rain in them by the look of it......where did summer go I ask ?

anyway whilst my antipodean partner is stresstesting the FXcorrelator (anyone else playing yet ?) and bringing smooth tunes (haha??!) and other possible support Trading methodologies/Ideas to the table....I am going to focus on laying all I know down on the FXCorrelator....as I am painfully aware that a lot is still in my head (not a safe place !)

I see 6,000+ views (dont think all by me?).....so people are digging some of the thoughts I hope, as I dont think its our witty dialogue........

please come and play or pm us as the ideas are not going to grow on their own and I fear Ivan is running out of tunes to punnish/publish.......(doh - why did I say that !)

right on with the show as I have about half an hour
Neil

 

[NVP]

More on Settings and thoughts

Right....

the FXcorrelator is deceptively simple regarding formulas etc etc but very powerful in what it portrays......

its almost like using a Macd with just the 2 lines or perhaps 2 MA's on a chart or 2 RSI's overlaid on a normal pair....................except one of the pairs (the second currency)
is not UASD or CHF or whatever.......its all other Currencies (apart from the lead pair) together...

so the USDollar (mr Green) in the charts is pretty close to the USDollar index as offered on some trading platforms, GBP is pretty Close to the Sterling Index which I have no idea is offered at all.....and so on !

the MA dictates the Baseline for how the Currencies will move......a longer MA (200-500) means you get a nicer and more realistic platform to guage distances from the Delta setting you add......however this will naturaly be slower regarding crossovers etc etc as yuo are looking at 200 Crossovers vs say a MA setting of 55 or 21 which will be crossing over much much faster and more frequently (actually these levels do my brain in !).......Try it and play......

the Delta will smooth th eline as required......1 = real bar pricing so on a MA200, Delta 1
setting you are viewing how the price of a currency is performing on a 200MA verses everything else and any crossovers will be (95% accurate) at when on the pairs chart the MA1 crosses the MA200

ease back on the Delta throttle and it smooooooths things just like increasing a second MA line on any chart......hence a 200/13 FX correlator is much smoother than a 200/1 setting..........nice to look at but remember you are now well off the pace if you are
trying to trade it

Everything the FXCorrelator does is aligned to the Dynamics of Moving average techniques and Trading systems.........plenty of benefits but notoriously lagging !

I would add charts but brain hurts and havnt had a coffee yet
Neil

umm next is trading ideas but got to get ready now........

this is thread 71....I have cleverly sprinkled the key Posts around the Thread so we have no idea or logic on where to find them !!! (Index one day when we have all the key info)

I think the Delta explanation is fairly ok now........as its a moving average as well the lower you set it the more aligned the line movements are to real time bars...so a 20 Delta will really flatten the movements and the 1 is basically like having a line style chart with each new point based on the close of the price (enough they cry - we get it!)

aaaahh but the MA is another matter and I have been deliberately using a higher one (the 200) as changing this also drastically changes the feel of the indicator

Think of a normal chart/pair and add a 200ma to it (Simple/expo whatever).....now if you monitor the distance between the closing bar and the 200ma line (kinda like Stochs and MACD's) because the 200 is fairly slooooow to respond then the distance is much more influenced by the ACTUAL price move of the Bar instead of the speed at which the 200MA is swinging around......

However as you reduce the MA the MA line is going to be increasingly volatile and become more of an issue re Isolating/monitoring the BAR price.....

a pictures worth a thousand words (you are glad to hear !)

on the left is 200/3 - the middle is 50/3 and the right is a 20/3

what do you see ?...........they are increasing in volatility (as predicted) and (in my opinion) this is making it harder to call points of support and resistance for potential breakout trades..........but then thats not the only trading methodology usable on the FXCorrelator and reducing the MA is perfectly aceptable as long as yuo know what its doing !......

notice also on the left 200 = about 2-3 crossovers on the whole screen vs the mayhem on the 20MA on the right ?.....again just the same as a simple MA on a pairchart the right has loads more because on low delta settings the price line will be criss-crossing the 20MA many more times than it will be crossing the 200MA !

so one more little thing to absorb.......those of you more experienced in MA analysis will realise that therefore that a 200/3 on a 15m chart = a 50/3 on a 1h chart (95%?) and so on across the board... same as this works on standard charts/pairs.....

try it !....infact chart 2 attached does it for you......ive had to compress the 15m on the left a little to match the sizes - but all the characteristics are the same as the right hand chart which is the 1 hour........crossovers will happen pretty much same points as well of course....(hey nothings perfect !)

Thats it for now sports fans.........getting ready for work (doh!)
Neil

 

[NVP]

Making trading calls !!!

God .....

Sneaking a quick look around the threads..... to draw people in you have to (Gasp!) make trading calls !

Once I get the hang of this I can back edit all of these calls to look like everyones a winner but dont tell the moderators

meanwhile ive pulled 2 5mins togetther here on slightly diff Setting to highlight a potential trading opportunity...I have a feeling this will be sucessful based on my earlier comments !

lets see if it offers itself....I took this shot at 9am GMT
(i'll keep those charts up and look later)

Neil


Neil

 

[NVP]

Dynamic resistance Trade - example

Hey before I go.....

noticed this on previous chart posting so sharing it to help further explain the FXCorellator vs "normal Charts"

its pretty self explanatory showing how the GBP bounced right off Resistance on the USD earlier today......a classic Rebound off of the legendary 200MA !

i'm not sayign when to trade it as that needs your own personal comfort blankets and systems..i'm just saying this is how it looked !

other times (of course!!!) the GBP will whipsaw briefly at this point then carry on down to start a new trend on the other side of the 200MA against the Yen/Dollar (doh!)

Neil

 

[NVP]

9.34am update on trade

not all things move at the same time........

Wait for it.wait for it !!!

you could always drop to the 1min (200/1) if you wanted to get more idea of the situation (but cant be arsed here)

 

[NVP]

9.44am..what about now?e

up to you.........i personally think this is all a fix....where are those wires ?

(sorry - actually only the GBP USD's have breached......but the hell yuo must see what I mean !)

 

[NVP]

9.51........Looking good !

Well its looking ok anyway at this point as a decent high prob entry and you can lock in for b/e or whatever you trading types do...........

i'm just trying to demonstrate the indicator !
Neil

do you see how any pips made here so far were not really because the Yen or USD was falling that much ....it was the GBP was going up rapidly vs everything else....thisd is what yielded the profit........

looking at a single pair (eg GBPUSD in this case) will never tell you what is behind the movements......but the FXcorrelator will always show you what currencies are driving the trades and trading opportunities !

I bet it bl**dy falls back now !!!

 

[NVP]

10.03...its holding !!

now if i were in on this trade it would have already collapsed big time !

unbelievably its holding and could go higher

NOW.....see how the Yen has (finally) woken up?.....if this keeps going the yen
will take over the charge downwards from the USD as it is the more Volatile partner
and doesnt like its Tag team partner being faster !

Neil

 

[NVP]

10.10....is the party over ?

or is this the retrace before another push ?

See I said the Yen would speed up downwards......howerve reveryone retracing at present..........lets hope the "entry" lines hold as support

fingers (and everything else) crossed !!!
N

also we should ideally have some o/b and o/s lines on the FXCorrelaor chart showing to remind us how much is left "in the tank" re our Buy GBP / Sell Yen or USD trades....but I forgot (ha ha ha )

 

[NVP]

10.24.....all is quiet.....

Boring !

by the way ive now put some o/b & o/s on shart at around the +/- 0.00010 level and since you cant see them yet we have a little leeway left

whilst we are on the subject of o/b and o/s (or perceived levels of Skew) reminds me of a couple of good book's that I didnt understand (averaging 1 dictionary lookup per page !) but were quite entertaining for a read........

the Black swan and the follow up book (cant remember that one).....guys name was Talib something - a good read with the motto never underestimate how far markets can and will skew !

N

 

[NVP]

10.34ish....this is interesting !

looks folks.........more insights into the can of worms that
is currency movements

and you thought I said everything opposes the mighty USD/YEN Tag team....

it does most of the time - but not here at this moment !!

Jesus - what do you want for free ?????

N

 

[NVP]

and in conclusion m'lud.....

heres last post for this bit....just wraps it up really

hope you enjoyed the show.......now I have to go back and fix all the charts to make sure we made money !!!

N

 

[NVP]

US DOLLAR INDEX vs FXCorrelator

Hi

all this is a quote from moneyweek (a uk publication).....forget the blurb it also had
a chart re the USD Index that I promised to compare to the FXCorrelator's USD line.

so 2 charts and ive aligned them accordingly leaving Yen and CAD in because it was mentioned below.........(200/1 setting on the 'ole FXC)

what do you think ?........closeish movement correlation (phew !!!) although interestingly the FXC version claims lower USD Value/levels now than 2 years ago
vs the USD index..........however remember as I've said before in this post...the Zero line is not important its only the relative distances/relationships between all the currencies that is valid....

all the same I will think about this a likkle more..........any ideas why people ??? (hey aside from my indicator is Cr*p ha ha ha )

and guess what folks...(ego trip alert)....

I dont think the USD Index goes below daily TF's (?) whereas FXC goes down to 1min.... and theres also the little matter of the other 7 currencies kinda missing from the picture!

sorry - ego trip over......I can honestly say I havnt compared these before but was assuming they would be similar (thank god !).......

N

also this reminds me - I promised some more stuff on how forex interacts with other markets as in the extract below.....I mentioned these generally in a very early post but will elaborate over next few days...dont hold your breath though as if you've been around the block a few times there will be few surprises !


Where can you hide from the falling stock markets?

If three leading indicators, sentiment readings and a seasonal pattern which has so far played out are all suggesting that declines are just around the corner, where’s the best place to hide? At the moment I like cash and gold.

Which cash? Longer-term I like the Canadian dollar, the Norwegian krona and the Chilean peso, but these currencies rise and fall with commodities and, for now, I am not bullish about commodities. If we get a correction in stock markets, then the US dollar will benefit, just as it did in 2008, in a flight to safety.

It is a seriously flawed currency, underpinned by too much debt and a flawed economic model, but as the global senior currency, it is the first place people run to. Owning the dollar is almost like shorting stocks, so if the bear market in stocks resumes, we could get a nice rally to at least the mid-80 area (see chart below). For now, the lows around 78 on the US dollar index (the measure of the dollar against a basket of currencies) seem to be holding.

hmmm....not convinced re the CAD comments.....as for buying USD its all about using good old Technical signals from the FXC and standard charts and trading what you see !

looking at below (and I know not all the gang are on the chart!) looks like the tag team have hit a floor and could start moving up again......sooo a cheeky plays could be on the cards as the Yen/USD breach their previous "highs" in june09........but what do I know ?

 

[NVP]

competition time !

Ok heres a challenge

load up the FXCorrelator
Any TF of your Choice (shorter term to get faster results preferably)
set it to 200/1, 2 or 3 Delta........(ooo options now)

Then call a trading opportunity, attaching a backing chart (for the evidence m'lud)

the prize for correct calls will be announced once we get contenders posting

This includes Ivan in Game of course (fix fix fix......)

N

i'll even load one to get ya started as an example heres
TF5min 200MA on 3 Delta with +/-25 as the eyeballed ob and os lines
What do you see (and dont say "a mess")

 

[NVP]

any thoughts now......?

Hi all

Ingot54 has pm'd me and has been tied up today.....its beddie byes time in
AUS so no more cheesy songs for a few hours....... :clap:

meanwhile things have moved on a little from last post....Tag team got bored being sold and have now stormed back "up the park" and have Crossed the (200/3) MA crossovers for Swissie, Euro and CAD and are charging at the rest

Also the Yen has not caught up with the USD yet during this reversal.....so the USD is really shifting upwards at pace !

looking over the day re trades..........if you'd been buying GBP since early hours and dumped them as they headed for ob territory then you deserve that first coldie already !

Selling the tag team against it (surprise surprise !) + for some strange reason the Grey horse...the Swissie was lowish in the early hours (??)

c'mon make a call on next 2 hours activity !

N

 

[jansher21]

Guys,

I have a question for you correlation masters :

Is there any way to run some form of stats, for the correlation of gbp/jpy and the movement of say sp500 ?

Many thanks,

Your correlation, wannabe padawan.

Hi all

Ingot54 has pm'd me and has been tied up today.....its beddie byes time in
AUS so no more cheesy songs for a few hours....... :clap:

meanwhile things have moved on a little from last post....Tag team got bored being sold and have now stormed back "up the park" and have Crossed the (200/3) MA crossovers for Swissie, Euro and CAD and are charging at the rest

Also the Yen has not caught up with the USD yet during this reversal.....so the USD is really shifting upwards at pace !

looking over the day re trades..........if you'd been buying GBP since early hours and dumped them as they headed for ob territory then you deserve that first coldie already !

Selling the tag team against it (surprise surprise !) + for some strange reason the Grey horse...the Swissie was lowish in the early hours (??)

c'mon make a call on next 2 hours activity !

N

 

[NVP]

Jansher21....dude welcome back !!

Thats a fine question and I'm glad you asked it ! (cheques in the post)

I've promised something on this about 3 times but got sidetracked each time...

Let me dig it out and add it to the Thread in next hout or so.......wheres it gone now?

(rummage rummage)

N