I am beginning to trade a grid style system. Currently I'm only running it on Eur/Usd. I want to open it up on to another currency. I'd like to use it on GBP/USD for the increased volatility while still playing a low spread with a high liquidity pair. Cable and eur/usd are somewhat correlated pairs.
Should I care though? For one, the volatility between the pairs is different such that it will produce different trade signals with my system as it is purely price action and mathematical. Secondly, even if the pairs are 85% correlated, the other 15% of the time will most likely push the systems to different results. For example, say the 2 pairs are uncorrelated for a period of time such that cable drops 100 pips while eur/usd rises 25 pips. Then the two pairs become 100% correlated and rise together exactly. My system will still produce different signals since one is 125 pips below comparatively.
So is correlation really something more important to consider when using lagging indicators like MA's, RSI, MACD and not necessarily when using price action exclusively?
Should I care though? For one, the volatility between the pairs is different such that it will produce different trade signals with my system as it is purely price action and mathematical. Secondly, even if the pairs are 85% correlated, the other 15% of the time will most likely push the systems to different results. For example, say the 2 pairs are uncorrelated for a period of time such that cable drops 100 pips while eur/usd rises 25 pips. Then the two pairs become 100% correlated and rise together exactly. My system will still produce different signals since one is 125 pips below comparatively.
So is correlation really something more important to consider when using lagging indicators like MA's, RSI, MACD and not necessarily when using price action exclusively?