Do any of you watch correlation between pairs and if you do, does it change how or what you trade? I’m trading USD pairs and a lot of times the move the same. So it got me thinking maybe that’s not the way to trade.
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I’ll use it as a secondary bias, but I don’t directly implement it into my trading system.
Sure when Gold dumps, dollar pumps. That has been the general consensus.
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Absolutely. If you take a trade on AUDUSD and NZDUSD both at the same time then you’re double exposed. It’s very important to pay attention to correlated pairs.
The whole market is correlated in a sense. Sudden news or a big event can send waves across all pairs, creating big moves on the shorter TF’s.
Best to limit the pairs you trade or limit your trades so you’re not overexposed.
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You can create strategies on correlation pairs and achieve different results, so no , I don’t care
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Long-term I am very careful not to run parallel correlated positions.
When looking for short-term entry signals I don’t look at correlation at all.
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After reading this section of the school of pipsology, I am now modifying my trading plan to take this into account. Objective - fewer trades, higher probabilities. Undergraduate - Senior - School of Pipsology - Babypips.com
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Yea that makes sense. I’m risking too much!
okay good to know.
Oh thanks for this!
No, and there is no way that all USD involved pairs move the same, lol impossible. If you really think about it some of them should move in the exact opposite direction in fact :).
Monitoring correlations between currency pairs is important as it helps manage risk and optimize trading strategies.
Yep, I keep an eye on correlations. If you’re trading a bunch of USD pairs, they can move together and either boost your gains or your risk.
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you are almost right. if you open a lot of trades with big volume at same time you should not do that but if you trade a few at one time it is no problem to trade correlation.
Do you guys have a favorite place to look at them? Like a tool?
Sometimes I also noticed reversed correlation of a same currency in different pairs.
Yea that makes sense to keep an eye on that too.
This is past correlation it doesn’t tell anything about the future. No-arbitrage condition which works almost perfectly in efficient currency markets makes it almost impossible to extract profit from short-term discrepancies between prices of currency pairs. So in my view it’s just a fancy tool
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yes definitely its something to keep in mind when trading…
i do! because they dont always react at the same time… some react faster than the other… so there might be unrealized opportunities…
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Correlation is why I quit trading more than one currency pair at a time–that, and I’m on the 5 min chart–so trading only one pair (eur/usd), which makes sense.
Also, keep in mind that other instruments may correlate with currency pairs. The most obvious example is the dollar index and USD pairs.
Last, you should also keep in mind opposite correlation and how that can affect your overall trading portfolio.
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