Best Thread Correlation Trading - Basic Ideas and Strategies

[NVP]

Work in progress...........

Hi Janshrer21

I have one but i need to play with some formulas and tidy it up a little more
(probably why not posted earier then NVP !)

busy at work till later on unfortunately now so will post tonight or early tomorrow....(promises promises)

It utilises the US Equity indices available in the Basic Metatrader package...."WS30" I think is the most representative on the Platform....any others you want thrown in the pot while i'm playing ?

youre gonna love the Yen vs WS30 !

N

 

[NVP]

US Equity Indices vs FXCorrelator

Hi all

I need to publish and leave as I'm under threat of death to go eat my Dinner !

I have sacrificed the NZD Currency line to introduce a new family member on this Version of the indicator

our new entry is the WS30 indice in Metatrader which I will update you fully tomorrow re what it is etc etc......This dude is in bold Purple (nice!) and is the US based one they offer....

now their are lots of caveats on this and how to view / Trade it as we are now mixing apples with oranges on 1 chart (if you get my meaning) so its not perfect

lose some of the Lines to make it look nicer......leave on USD and Yen and the WS30

Generally on all TF's and under all conditions you will see the tag team moving in the opposite direction to the WS30...........Why ?

i'll fill in tomorrow.......meanwhile must go or dinner will be on my head !

N

 

[NVP]

Gold, gold !!!

while i'm up and grouchy....(BC, before coffee 😴)

heres gold......this time ive sacrificed the Swissie to bring Gold out to play....the NZD is more interesting to have there because its a "commodity" currency

GOLD is bold and purple again....(original then NVP)

plenty of caveats again dudes that I will mention later.....and I may bring down the scaling of the gold Line, but this is the setting i've been using for a while

in theory Gold will be mostly the opposite of USD (and Yen).....cos thats we've been all taught................and we must believe what we are taught on these sites.....right ???

N

 

[NVP]

Theres no fool like an Oil fool....

ok last file for today.....easier to do it here at home than remotely later
(logmein.com still rocks though !)

Swissie still out of the party (thats what you get for being boring...why doesnt it ever get drunk and party a little with the GBP? :cheers🙂

soooo.........bold purple = OIL, ive made CAD bold..........and it now looks pink (?)😕

so these two guys always move together as we are taught that......right ?

Caveats on this as well as unfortunately any non Forex Line within the Pure FXcorrelator
environment is an orange in with pears**.......but still not to bad to eyeball....and we are teaching/reviewing here ....not trading......yet !

** CLUE....put the OIL/WS30/GLD chart alongside the appropriate FXC chart with 2 ma's of 3 and 200...... and check where they crossover against each other !

More later
N

 

[Ingot54]

So ... who's asleep NOW! Plus more music!

Hi all

I need to publish and leave as I'm under threat of death to go eat my Dinner !

I have sacrificed the NZD Currency line to introduce a new family member on this Version of the indicator

our new entry is the WS30 indice in Metatrader which I will update you fully tomorrow re what it is etc etc......This dude is in bold Purple (nice!) and is the US based one they offer....

now their are lots of caveats on this and how to view / Trade it as we are now mixing apples with oranges on 1 chart (if you get my meaning) so its not perfect

lose some of the Lines to make it look nicer......leave on USD and Yen and the WS30

Generally on all TF's and under all conditions you will see the tag team moving in the opposite direction to the WS30...........Why ?

i'll fill in tomorrow.......meanwhile must go or dinner will be on my head !

N

Hope you enjoyed dinner, Neil - I'm enjoying the thread!

OK people ... I have a lot happening right now - going back to work in about 7 hrs time, plus family issues needing my attention, so will miss the action at times.

But while many of you are slumbering, I thought I'd catch up on a post or two ...

I like the idea of marking possible over-bought/over-sold levels, but as JM Keynes stated: "Markets can remain irrational longer than you can remain solvent." so these o/b and o/s levels can only ever be a guide! Indeed as Nassim Taleb reports in his acclaimed book (which I have not read yet) "The Black Swan: The Impact of the Highly Improbable" markets have "unpredictability, consequences and retrospective explainability."

That pretty much covers the theme (in a nutshell) of his other book: "Fooled by Randomness".

I can see that this method can be used very powerfully when price is approaching support and resistance simultaneously with the Corries in agreement.

I noted Neils' comment from Post #83 where he said: ... 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 moving at parity This is an important fact to tuck away in the brain. It means that if trading on Corries alone, you need to keep an eye on price when the two level out. It could be that you may miss valuable pips thinking the move is over.

And no, Neil - I am not running out of tunes to "punish or publish" - Youtube is full of the goodies. But I have decided that they clutter up the thread a bit too much! But in deference to your request :innocent: I include one for the road - the late Dan Fogelberg singing: Same Old Lang Syne.

YouTube - Dan Fogelberg - Same Old Lang Syne

In the future I will be taking requests only!

I have loaded up your latest W30Correlator, but the purple line simply replaces the zero line ... the others are exactly the same, moins de la NZD. Maybe you could explain how to use it ... or if need be, tweak it a tad?

I think we might get more "audience participation" if we recap a bit. So please condescend to allow me to provide a summary to this point:

1a) Posts #1 and #2 provide the background as well as the MT4 attachments.

1b) Here are the codes for the colours to remind people quickly:

USD - GREEN
GBP - RED
EUR - BLUE
AUD - GOLD
NZD - LIGHT BLUE
CAD - BROWN
JPY - YELLOW
CHF - GREY

2a) The essence of this method is that currencies do not always need to be represented in PAIRS - they can be represented on a "stand-alone" basis expressed in a single picture, showing the correlation (co-relationship) between each one.

2b) Further to that - the FXCorrelator (Affectionately referred to now as "The Corry") simply shows where each currency is now relevant to the others.

2c) Additionally, you should know that the sum of all currencies is zero (ie a zero-sum-game). You can interpret that to mean that if ONE currency rises, then ANOTHER MUST FALL. But you have to be aware too, that when one rises or falls, it does so in relation to one, two, or all of the others.

2d) Most countries of the world have their own official currency, while a few adopt the currency which is dominant or expedient in their region. Not too many countries have their currencies "pegged" any more. China does, but the CNY or Renminbi (or YUAN) was, for a time, allowed to appreciate about 3% to 6% a year, until 2007-8. It could easily explode by 30% if they ever un-fix the pegging. My view is that they will, when the Renminbi is ready to supplant the USD as world currency - look out for around 2012. The reason I include that, is to show that ALL currencies float about like corks in a bucket - one rising another falling - they cannot rise/fall in unison. (They might if the CNY explodes as I said ... !)

3) The Corry can be traded as a stand-alone system. It is not necessary to look for support/resistance, RSI, MACD, Stochastic etc - but it is necessary to know against what other currency the move is happening, and trade that pair LONG or SHORT, according to the direction indicated.

4a) There are TWO reliable "base" currencies, which can be used to measure the movement of others, and indeed trade them: The USD and the JPY. These are affectionately known in this thread, as the "Tag Team", and for MOST trades, they are reliable enough to attach to as a trading vehicle.

4b) The benefit of using one of the "Tag Team" as anchors, is that you attract Low Spread and also have a choice of volatility styles. The ***USD pairs will be generally less volatile than the ***JPY pairs. It is far better to trade EURJPY with a spread of 4 pips, than it is to trade the EURCAD with a spread of 9 pips. For lower volatility, you could trade EURUSD for a spread of 2 pips. This example refers to a rising or falling Euro which you wish to trade.

5) If it is noted that the GBP is rising at the same time the JPY is falling, you may simply go long or short that pair. However, it is also possible to play the correlation another way, by "splitting" the pair against another "stable" currency at that time. If the EUR is parallel to the zero line, and the GBP and the JPY are below and above the zero line respectively, then it would be a simple matter to go LONG the EURGBP simultaneously as you go SHORT the EURJPY. There would be times that this strategy would be very effective - eg when BOTH the EURGBP and the EURJPY are at support and resistance respectively.

EDIT: 5b) If you are already wishing to trade one of the "Tag Team" ie the JPY, then it is not good practice to use the other partner (the USD) to trade, unless you are looking for lower volatility. In this case, you would simply trade the GBPUSD and not the GBPJPY. Be careful though - it could well be that the USD is in tandem with the GBP (they are frequently positively correlated) and the trade would fail.

I think that is enough for now ... but could I encourage people to load-up the indicator from Post #2 and build the Correlator into its own chart as Neil explained in Post #70. That is easy - if you are struggling a bit - just let me know and I can clearly explain how to do it in easy-to-follow steps.

EDIT: Do not be put off by the seemingly endless possibilities to be learned here - they CAN be quickly picked up and used.

Just build your correlator ... and it will come! (With apologies to Shoeless Joe from "Field of Dreams" starring Kevin Costner)

Best wishes

Ivan

 

[Ingot54]

Neil - could you take a look at your W30 Correlator?

I get the purple line displaying in place of the zero - it does not seem to respond to any other events (in my download of it).

I am only able to edit my own posts. Management can step in if there is a problem with the thread.
If you have an issue with someone's post, just hit the "Report Post" button on the bottom left hand side of the offending post.

Cheers mate

Ivan

 

[NVP]

ok will do later at work....presume you cant do it ?
N

 

[NVP]

thanks Ivan - my comments here !

Hope you enjoyed dinner, Neil - I'm enjoying the thread!

I like the idea of marking possible over-bought/over-sold levels, but as JM Keynes stated: "Markets can remain irrational longer than you can remain solvent." so these o/b and o/s levels can only ever be a guide! Indeed as Nassim Taleb reports in his acclaimed book (which I have not read yet) "The Black Swan: The Impact of the Highly Improbable" markets have "unpredictability, consequences and retrospective explainability."

That pretty much covers the theme (in a nutshell) of his other book: "Fooled by Randomness".......

Thats the guy I was thinking of thks !

I can see that this method can be used very powerfully when price is approaching support and resistance simultaneously with the Corries in agreement.

I noted Neils' comment from Post #83 where he said: ... 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 moving at parity This is an important fact to tuck away in the brain. It means that if trading on Corries alone, you need to keep an eye on price when the two level out. It could be that you may miss valuable pips thinking the move is over.
to recap on Ingot54's "nugget" here 😆 if you have 1 currency above another (espec 1 above and 1 below the zero line) but running parrallel on shorter MA's they are NOT running parallel in price on the pairs chart.....the higher currency is displaying a higher rate of change and is therefore increasing in price to the lower one on the pairs chart......not so much of an issue this on the 200MA

And no, Neil - I am not running out of tunes to "punish or publish" - Youtube is full of the goodies. But I have decided that they clutter up the thread a bit too much! But in deference to your request :innocent: I include one for the road - the late Dan Fogelberg singing: Same Old Lang Syne. I love the tunes.....makes our Thread diff to the other drier stuff out there !

In the future I will be taking requests only!.....well keep em coming !
I have loaded up your latest W30Correlator, but the purple line simply replaces the zero line ... the others are exactly the same, moins de la NZD. Maybe you could explain how to use it ... or if need be, tweak it a tad?......let me look they look all right on my Metatrader software when I tweaked/tested them this morning
I think we might get more "audience participation" if we recap a bit. So please condescend to allow me to provide a summary to this point:

EXcellent !!!!!

1a) Posts #1 and #2 provide the background as well as the MT4 attachments.

1b) Here are the codes for the colours to remind people quickly:

USD - GREEN
GBP - RED
EUR - BLUE
AUD - GOLD
NZD - LIGHT BLUE
CAD - BROWN
JPY - YELLOW
CHF - GREY

2a) The essence of this method is that currencies do not always need to be represented in PAIRS - they can be represented on a "stand-alone" basis expressed in a single picture, showing the correlation (co-relationship) between each one.

2b) Further to that - the FXCorrelator (Affectionately referred to now as "The Corry") simply shows where each currency is now relevant to the others.

2c) Additionally, you should know that the sum of all currencies is zero (ie a zero-sum-game). You can interpret that to mean that if ONE currency rises, then ANOTHER MUST FALL. But you have to be aware too, that when one rises or falls, it does so in relation to one, two, or all of the others.

2d) Most countries of the world have their own official currency, while a few adopt the currency which is dominant or expedient in their region. Not too many countries have their currencies "pegged" any more. China does, but the CNY or Renminbi (or YUAN) was, for a time, allowed to appreciate about 3% to 6% a year, until 2007-8. It could easily explode by 30% if they ever un-fix the pegging. My view is that they will, when the Renminbi is ready to supplant the USD as world currency - look out for around 2012. The reason I include that, is to show that ALL currencies float about like corks in a bucket - one rising another falling - they cannot rise/fall in unison. (They might if the CNY explodes as I said ... !)........also concerning the big 8 we cover..the markets are not pure and Governments can step in in many ways to try to control their currency....this even includes the odd bit of buying / Selling themselves ! ....watch the Yen for this (a lot) and recently the Swiss guys got twitchy when their boy got toooo pricey against the Euro......

3) The Corry can be traded as a stand-alone system. It is not necessary to look for support/resistance, RSI, MACD, Stochastic etc - but it is necessary to know against what other currency the move is happening, and trade that pair LONG or SHORT, according to the direction indicated...so can we call this a Corry Trade ?:😆............

4a) There are TWO reliable "base" currencies, which can be used to measure the movement of others, and indeed trade them: The USD and the JPY. These are affectionately known in this thread, as the "Tag Team", and for MOST trades, they are reliable enough to attach to as a trading vehicle......absolutement

4b) The benefit of using one of the "Tag Team" as anchors, is that you attract Low Spread and also have a choice of volatility styles. The ***USD pairs will be generally less volatile than the ***JPY pairs. It is far better to trade EURJPY with a spread of 4 pips, than it is to trade the EURCAD with a spread of 9 pips. For lower volatility, you could trade EURUSD for a spread of 2 pips. This example refers to a rising or falling Euro which you wish to trade
........ive never really gone into the detail on the spreads and why they are so different...especially the more exotics (eg EURCAD)...to me the CAD is less volatile than the GBP so why the better spread offered on the GBPEUR ?

if you trade two opposing high volatility currencies such as the JPYGBP then you stand the chance of making much higher returns per trade than lesser combos.....however if they turn or whipsaw you will be stopped out much more often unless you have large stops in place .....and if its wrong its wrong anyway !


5) If it is noted that the GBP is rising at the same time the JPY is falling, you may simply go long or short that pair. However, it is also possible to play the correlation another way, by "splitting" the pair against another "stable" currency at that time. If the EUR is parallel to the zero line, and the GBP and the JPY are below and above the zero line respectively, then it would be a simple matter to go LONG the EURGBP simultaneously as you go SHORT the EURJPY. There would be times that this strategy would be very effective - eg when BOTH the EURGBP and the EURJPY are at support and resistance respectively.........I need to think about this one Ivan.......to be honest up to this point I personally have only used the Corrie to identify a good trade on 1 pair...but thats me !

EDIT: 5b) If you are already wishing to trade one of the "Tag Team" ie the JPY, then it is not good practice to use the other partner (the USD) to trade, unless you are looking for lower volatility. In this case, you would simply trade the GBPUSD and not the GBPJPY. Be careful though - it could well be that the USD is in tandem with the GBP (they are frequently positively correlated) and the trade would fail.

I think that is enough for now ... but could I encourage people to load-up the indicator from Post #2 and build the Correlator into its own chart as Neil explained in Post #70. That is easy - if you are struggling a bit - just let me know and I can clearly explain how to do it in easy-to-follow steps....thanks mate that would be appreciated !

EDIT: Do not be put off by the seemingly endless possibilities to be learned here - they CAN be quickly picked up and used.

(:!: and believe me they can ....just put different glasses on and stop thinking about currencies as PAIRS ......the corrie brings all 8 currencies to life as "3d" standalone PERSONALITIES in their own right, each displaying unique traits and mannerisms just like any other standalone Indice such as the WS30 or the DAX... .:!:

Just build your correlator ... and it will come! (With apologies to Shoeless Joe from "Field of Dreams" starring Kevin Costner).....no songs in that film were there Ivan ? :cheesy:

Best wishes

Ivan

Ivan (seriously) 👍thankyou for your help and keeping this trainwreck thread on the track....I am starting to believe this could really take off and fly !
(oh no....RJ kelly time ?)

 

[NVP]

looks ok this end ?

sorry Ivan (I know you are asleep now though)

they all look a-ok on my Screen (see below)😕

could someone else in the strateshpere try to load them ?

if you to have problems please use the Team America signal.............

thks
N

 

[Ingot54]

Build it ... and they will come?

Ivan (seriously) 👍thankyou for your help and keeping this trainwreck thread on the track....I am starting to believe this could really take off and fly ! (oh no....RJ kelly time ?)

Neil - I am off to work shortly.

I am at a loss: Why are we talking to ourselves - couldn't we do this by email - much faster, and much more could be said.

I seriously doubt anyone is watching the thread - no feedback, no input, no questions, not even the usual critique!

I vote we abandon the thread, unless it is of benefit to someone else.

After 6,350+ views, I am wondering about the: I am starting to believe this could really take off and fly ! part. Maybe I am just having an off day.

Will catch you over the weekend.

Cheers

Ivan

 

[Ingot54]

W30

sorry Ivan (I know you are asleep now though)

they all look a-ok on my Screen (see below)😕

could someone else in the strateshpere try to load them ?

if you to have problems please use the Team America signal.............

thks
N

Here is what I am getting.

Gotta go - back tomorrow.

 

[NVP]

WS30 equivalent for trading it..........

Hi

when we do get this sucessfully onto our charts this what the Metatrader WS30 chart is equivalent to on my spreadbet company

N

 

[NVP]

Here is what I am getting.

Gotta go - back tomorrow.

perhaps the US market was quiet ???........hahahahahaha

N

 

[NVP]

5,000 pips a week - Guaranteed on this post

Neil - I am off to work shortly.

I am at a loss: Why are we talking to ourselves - couldn't we do this by email - much faster, and much more could be said.

I seriously doubt anyone is watching the thread - no feedback, no input, no questions, not even the usual critique!

I vote we abandon the thread, unless it is of benefit to someone else.

After 6,350+ views, I am wondering about the: I am starting to believe this could really take off and fly ! part. Maybe I am just having an off day.

Will catch you over the weekend.

Cheers

Ivan

Now i have everyones attention on the planet.....!!

Got to be honest, I'm getting twitchy ............6,000+ views and we have no real pupils stepping to the plate yet as either to shy or this stuff is as dry as the sahara
(or both!)

Ivan and I have agreed to give it 1 more week here with all the current links up and running and cordially invite people to join the debate or PM us on this voyage of discovery .....we really need members to stress-test this baby and bring loads of trading ideas and thoughts to the table !

its not our poor bruised ego's or commercial greed driving this decision (this stuff here has been offered for free - gratis)......just logistics as we need members and participators to take this brand new trading paradigm forward at the pace we want

look I'm even using the Team America distress signal !

see ya all next week as i'm away at weekend.........Ivan in the Chair .

N

 

[NVP]

recent Indicators being removed

I think I know whats wrong so i'm removing/deleting and reloading them when ok.......not worth spoiling the thread and original indicators reputation with
these ones that arnt showing what I want !

The mean and lean original FXCorrelator is still here (in thread 2 I think)......just his kid brothers that
are playing up !

N

 

[NVP]

what happened this week then ?

Hi all

I just wanted to stroll through the week seeing what happened.........The Corrie is great for this, and once familiar with the way it works you can quickly interpret historical performance of the big 8 over any period or timeframe ............its just like (ummm) nothing else ! :smart:

heres the 200/3 Corrie on the 30m TF......fills the page out nicely !

THE GAINERS 👍

Yen - Yellow - Top dog and Winner for the Week !:clap:
was flying high over weekend then sold off all through monday 31st colliding with most other 200MAs on early hours of tuesday 1st.......lovely bounces of this dynamic resistance sent yen shooting back to numero uno spot for a long while....eventually surrendering to GBP(Red) earlyish yesterday morning.........recently sulking and finally starting to spend some time sub zero with USD (continuing into next week ?)

3 way Tie for second place....

AussieD (Gold) was comfortably second fiddle to Yen in early part of week then got bounced alongside the demise of Yen but never recovered again (unlike the yen)....then boring really rest of week

The USD (Green) appeared on the scene mid week as Yen went into its first big bounce/climb (Tag Team play !) although predictably less volatile so could not match the Yens power move......then faded to midmarket and tracking down gradually south alongside its lifelong chum

Finally The GBP has made its bid for Second place later on in the week becoming top dog for over 24hours and only just fading now to some big (commodity?)plays from AUSD and CAD

THE LOSERS 👎

CAD(Brown) took biggest hits this week....(Qu - did this correlate to Bad Crude week ?)
early on was pooooor - then tried to climb but got slapped back hard at 200Ma resistance levels and fell downwards for rest of week.....saving its best till last now so suspect crude is buzzing today (?)

Second place loser is I think NZD (L Blue) who spent the most time hanging with CAD and is now moving up alongside it as well (another classic rising commodity play ?)

GBP was down for a while but due to its high volatility levels (alongside the Yen) they will generally bounce around from top to bottom of the pack with frightening regularity

So I raise my glass to you all who made dinaros this week:cheers: and if you were Trading the JPYCAD pair at the correct times this week .......you are a genius !!:smart:


have good weekends and Ivan is on duty as I have already said
N

 

[NVP]

anything else worth noting here ?

Hey all.....as i'm flying out the door (i'm late again)

any one see stuff ive missed in commentary above ?.....i've just skimmed it really so perhaps some good stuff left to comment on ?

N

 

[tripleogstar]

So are you guys using correlation analysis or technical analysis?

 

[NVP]

Message to all......apologies !

Hi Everybody !

Firstly I must apologise.......I totally underestimated how much time and effort is required to service this kind of thing...(you cannot see it now but I started posting with just like 14 posts in 5 years prior to this !)

It takes time ! - even with Ingot54's invaluable help and support being seen here on all posts + in endless PM's where i am asking him for advice as an older hand.......for example you are not seeing the spams and other rubbish hitting this site that have to be discussed and removed with Moderators help that is time that could be spent doing better things......(you live you learn !)

Since my time is being constantly stretched in all directions (arnt we all suffering from this !) I have made a decision to slow this rollercoaster down to a crawl whilst I properly service and fulfill all the backlog work and promises made regarding the development and Training on this tool and its evolving family......and thats before getting time to look at all the great other sites/references that people have kindly offered up to enhance my research on Correlation ! (thanks again)

Next Steps

Ivan and I will be monitoring this site and responding where possible but are now totally focused on developing and fine tuning the tools and indicators further as some things are not working totally to my satisfaction..........and I hate that !🙁

We have asked the moderator to remove the files on thread 2 as I am not happy with them (inferior version)😱 - If anybody wants the latest version we currently support please PM us or request on Thread and we will contact you to provide a copy with some instructions for correct usage (well as much as we know now as we continue to learn about it !) ........ :smart:

Many thanks and heres to the ride !
Neil (NVP) and Ivan (ingot54)

 

[NVP]

correlation or Technical ?

So are you guys using correlation analysis or technical analysis?

Hi Tripleogstar.........

ummmm........check out all the posts to date...it seems we are doing
a combination of both, and it seems to be making its own rules up as it
goes along....

N