Hey guys just a quick question regarding correlation. How should I pair currencies. A strong one with a weak one, a strong one with one that’s not too strong ect. Thanks
Do you want to pair pairs or currency pairs? I mean you are thinking about EUR + USD, GBP, JPY or EURUSD + USDCHF, USDCAD?
Hey an I mean say I see a set up on Eur usd I look at all the usd pairs and all the eur pairs to see how they correlate. Then I can see which is stronger the eur or the usd if that’s makes sense. But today I had a set up on usd jpy but they both looked weak so would that of been a bad set up to take or doesn’t it matter
A currency strength mis-match makes more sense the longer you hold it. So you can be short a strong currency or long a weak one but statistically this will only work for a short time per trade.
5-10 years ago, there were strong correlations between EURUSD and USDCHF for example, or GBPUSD and USDJPY. If one went up, another went down. Today, you may face such correlations only if you use the same currencies within different currency pairs, e.g. GBPUSD up and GBPJPY very likely goes up.
The best way is to pick up major pairs such as USD/CAD , EUR/USD, AUD/USD, GBP/USD as they are highly liquid and offer good spreads.
Although, i use price as an indicator to choose a currency pair. For example, if EUR/GBP is making a new 50 low whereas GBP/USD and GBP/JPY are making new 50 high , this implies that british pound is a strong currency. On the basis of spreads i decide the strength and weakness of a currency pair.
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I use currency correlation as my side note; not as my main rules of trading!
Thank you Peter for mentioning this. I was just going through this thread and thinking if I have missed something. I am also using correlation between currencies as a side note, but never tried to make it the major one. Can anyone explain a bit how this strategy is functioning?