What currency pairs are correlated and how do you trade them
Thank you
I really needed something that direct
For most traders its not so much how to trade them its how to avoid over-trading them. For example, EUR/USD and USD/CHF are strongly correlated (negatively, so that as one goes up, the other goes down). Therefore, it usually makes little sense to have a position in both open at the same time.
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In general USD pairs should correlate depending on how each pair is quoted. Eg. NZDUSD, AUDUSD, EURUSD and GBPUSD should correlate most of the time then USDJPY, CHFUSD and CADUSD should correlate with the USDindex and with each other. Otherwise if you are looking at cross currency pairs the same would apply. Eg AUDNZD, AUDJPY, AUDCHF, AUDUSD and AUDCAD correlate and EURAUD and GBBAUD correlate. Then sometimes you find certain currencies will correlate with oil or the equity markets or gold. Trading the correlation between oil and CADJPY can be good during hurricanes in the Gulf of Mexico. Knowing what correlates with what you can for example place half your trade size on one pair and half on another pair to help with your risk.
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I appreciate your replies. I’ll demo it to better understand. Thanks once again