Correlation Trading and why is it so Powerful?
I suggest you chose the EUR/USD and USD/CHF .
Even at first glance, you should be able to detect a clear relationship between these two correlated currency pairs.
Can you see how they’re almost always moving in opposite directions? Can you see how when the EUR/USD goes up the USD/CHF tends to go down…and vice-versa?
If not, look again…
As you can clearly see, the charts for the EUR/USD and USD/CHF are almost perfect mirror images of one another. When the EUR/USD goes down, the USD/CHF tends to go up. And when the EUR/USD goes up, the USD/CHF tends to go down.
This relationship is known as a NEGATIVE CORRELATION, because these two correlated pairs (almost) always move in opposite directions of one another.
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Comments (7)
TamaraV Kane13
Stock Market Trader
In certain markets you can take advantage of resilience of a currency to the moves made by the market.
When I say market I mean the dependent variable.
For example... If you take the EUR/USD, AUD/USD and EUR/ USD you can say the USD is the dependent variable as it is the common denominator. So going by this logic you can look at the trend of the USD alone and then judge the strength or weakness against it of the independent variables.
Example: EUR and GBP both fall 100 or so pips but the AUD
Cherry Jonson7
SEO, Web Designer and Developer
The information you have add here is just useful TamaraV. Thanks for keeping us update.
TamaraV Kane13
Stock Market Trader
and in the 70's I was in Baghdad!!!!
TamaraV Kane13
Stock Market Trader
Are ya telling me how old ya are? Cause ya picture says a different story.......giggling.....
Franto Hruz16
Online Income Systems Development
I am trading ... and have been trading options from the time the CBOE was first opened in the 70's - ahahaha ...
TamaraV Kane13
Stock Market Trader
Ahhhh that is what I wanted, to wake up Uncle Franto....whootttt now I got ya where I wanted ya honey pie...now come and join me and lets get trading ......
Franto Hruz16
Online Income Systems Development
The only DIVERSION to this negative correlation is the EUR/CHF spread ... the Swiss have to keep this spread very small or their economy may just tank because most of their trading partners are using the Euro and will prefer to trade in EUR should the CHF become too volatile or uncorelated ... :)