In currency market we found two types of correlation like
1.Positive Correlation and2.Negative Correlation
1.Positive Correlation:
Which pair normally tend to move with same direction that two pairs are positively correlated.As per example most of the time we see EURUSD and EUR JPY moved with same direction.If eurusd go to up eurjpy also same.
But when we found eurusd go to down and eurjpy gone to up that means it is the effect of usd or jpy that is for few moments or day. For its positive correlation they again meet closely.
In that case we can open one buy position for eurusd and one sell position for eurjpy.
Today or tomorrow must make profit from these two position.
Made Distance to each other
Above picture we seeing that EURUSD gone to up and EURNZD gone to down. But normally they are positively correlated. Now they are very far from each other. It is the fantastic opportunity to take short entry from EURUSD and long entry from EURNZD. Because of their positive correlationship must they will come to close contact each other again.
Positively correlated pair
Between the two pairs EUR/USD and GBP/USD is positively correlated because if the demand for U.S. Dollars increases, the level of both currency pairs will usually going down. In the other hand if the demand for U.S. Dollars falls, then the levels of both currency pairs will tend to increase.
Similarly
The following currency pairs moved on the same way
EUR/USD and GBP/USD
EUR/USD and NZD/USD
USD/CHF and USD/JPY
AUD/USD and GBP/USD
AUD/USD and EUR/USD
USDCAD and USDJPY and like these way.
2.Negative Correlation:
When two pair moved with opposite direction that means one going to upside and another gone to downside. This type of relationship we called negative correlationship.
USDCHF and EURUSD are negatively correlated because most of the time when EURUSD going to up USDCHF run to down.For this reason these two pairs are negatively correlated.
Some negaively correlated pair is
EUR/USD and USD/CHF
GBP/USD and USD/JPY
GBP/USD and USD/CHF
AUD/USD and USD/CAD
AUD/USD and USD/JPY
EURAUD and AUDJPY and like these type .
Negative Correlation Trading between USDx and GBPUSD:
We know USDx and GBPUSD are negatively Correlated.So one is gone to up another will go down.
In that above picture we see USDx retest on the turncoated support area that means it should to go up. On the other side on the same timeframe GBPUSD broken the triangle pattern and confirmed the short direction.
From this Phenomenon we can easily take a decision for gbpusd short action(Sell entry).
4 thoughts on “Currency Correlation Trading Strategy”
With this knowledge of correlations in mind, let’s look at the following tables, each showing correlations between the major currency pairs (based on actual trading in the forex markets recently).
We know USDx and GBPUSD are negatively Correlated.So one is gone to up another will go down.
In that above picture we see USDx retest on the turncoated support area that means it should to go up. On the other side on the same timeframe GBPUSD broken the triangle pattern and confirmed the short direction.
From this Phenomenon we can easily take a decision for gbpusd short action(Sell entry).
With this knowledge of correlations in mind, let’s look at the following tables, each showing correlations between the major currency pairs (based on actual trading in the forex markets recently).
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Thanks for sharing.