Trading correlation pairs by using the other pairs

Have a good and safe weekend for everyone.

Daily Correlation Update.....Have a Nice Weekend to all

but these tables cannot be used for anything.
the correlation should be viewed on a chart.

it is important to show how crosses are correlated each other

As a declared lover of currency and pair strength meters, I share from my observation one although obvious but important note. Choosing the correct CSM or PSM is not a random process or simply because it looks good or because it is recommended by an expert or vendor. Having tested many (almost all) of the ones out there over the years, the simplest conclusion in my case is that this should be adjusted as much as possible to your operating strategy. In other words, if you mainly use moving averages in your strategy, then you should choose a CSM or PSM that is encoded to analyze MAs, if you mainly use RSI, it would be more appropriate to use a CSM or PSM that is encoded to analyze RSI, so same if you use ADX, Hi and Lo daily, MACD, Stocastics and so on, or if it is a combination of them. The point is, CSM or PSM preferably be related to your primary analysis tool.
With reference, certainly MADdash, PSA to name a few are a work of art.

I agree the 2 best on this forum, are the MaDash & PSA, again both Free Indicators with plenty for adjustability.
If only to confirm the trade you are about to take or taken.

This one seems to have passed me by, what is the PSA?

masterfully written by hanover: https://www.forexfactory.com/showthread.php?t=513671

I read a thread and I think a lot of useful information is missing or ignored.
I know because I use the correlation strategy, but not in the form it appears in my in this thread.
i'm not spoiling the thread but it won't work that way.

You are not contributing to the thread,
It's like getting detention in school and not being told why.
If you have a system, Please share, If you don't want to share,
please don't come and give out detention and not tell us why,
It doesn't help and it doesn't contribute.
You need to make up your mind.
You either want to contribute or criticize,
I am open-minded and will listen to anything, like you, I want to make a correlation strategy work.

Basically PSA, Pair Strength Analyser uses Linear regresssion lines from user selected timeframes, with user selected weightings, throw in ATR periods to produce currency & currency pair strengths in a visual format. The more the strength, the generally more trending the pairs and the higher the rank.

A very comprehensive powerful tool and sometimes can be overwhelming to the uninitiated. Again supplied totally free of charge by Hanover.

this correlation strategy has long been discussed in previous threads.
you are lagging behind in professional development.

More detention then give it a rest, where is your thread you've been on here since 2011 and you've not even started your own thread all you seem to be doing is annoying people, you need to switch off your history it's all there in black and white,

Hey fellas, just a note of clarification. I've tried to trade these concepts in the past and gave up on them. But I've researched and even tested it a little. so FWIW

There is a difference between correlation and strength. They are two separate concepts.

Correlation refers to sameness. Divergence of sameness offers opportunity to get in at a discount with the idea that the correlation will continue. It is a follow the leader strategy. There are plenty of threads etc. where you can learnt the concepts.

Strength refers to which currencies are moving the most and that ha nothing to do with mathematical sameness (correlation).

One needs to be clear on the two entirely different concepts and how to use them together (at least in theory)


The idea is not to identify the strong currency against the weak in the past, but rather to use a change in sameness (correlation) to arbitrage the timing of entry into the market. In theory you identify the leader and the follower. The leader goes up and you expect the follower to then "follow" and also go up (or down in negative correlation).

Put simply -

1. Strength = gives you DIRECTION

2. correlation = gives you TIMING OF ENTRY


In theory the idea of combining strength and correlation to time entry into the market is great. In practice, not so much.

1. the correlation indicators aren't very good as a practical matter. (some have suggested co-integration to replace correlation)
2. the amount of disruption in correlation is not large enough to cover spreads
3. IF you want to play the follow the leader strategy, you have to identify the leader and the follower, which the indicators won't do for you. So, ultimately it's just guessing.

I've seen lots so these threads and most don't even understand the concepts. let alone the implementation. Most just trade the currency strength indicators and wrongly call it correlation.

Whichever currencies are moving the most on any given day (strength) are "correlated" in the general sense (but not in mathematical terms necessarily) that they are both moving a lot that day. The correlation indicators will not necessarily show those currencies or pairs as correlated though.

You do not need a correlation indicator for that, but you can borrow the follow the leader type of concept from the correlation trading ideas.

It's still guessing, because there isn't any actual mathematical correlation necessarily just because two currencies are both moving a large amount in the same direction on any particular day. It's really just hoping the momentum continues for the two currencies that are moving a lot that day.

If you are implementing a strategy to trade momentum based on currency strength indicators, the correlation indicators will only confuse the issue.


I'd love to see you fellas prove it wrong, but math is math. Correlation does not equal strength no matter what kind of fancy math one devises.

Just as an interesting aside, PI is the only constant found in every single thing to do with numbers, every single time. It's all big circle and it goes round and round. Sorta like the correlation threads that always confuse strength and correlation.

I do hope it will be helpful to the discussion. I'd suggest folks identify two things with consistency for the type fo trading:

1. direction

2. timing

I'm here to learn from you all who have succeeded where i have failed and can show how to identify those two things consistently.

Kind Regards

PS I've not tried hanover's linear regression strength indicator so i'm interested to see how folks do with that. Regression to the mean is really replacing correlation though. It seems like a good idea.



Does regression help identify the leader and the follower?

here is indi trading Yen pairs, I made it from another indi long time ago, you can actually do from that whatever pairs you want, like eurusd-usdchf-eurchf, just change pairs in code

That is an interesting chart refan. TY for sharing.

That is a good strategy(divergence). I'm not sure the correlation indicators matter much though for divergence trading. Your chart shows currency strength indicators but not correlation indicators (I think?). If you can use divergence to identify timing, then great. I'm not sure you need any indicators at all for that.

I guess I'm not clear exactly what you are doing or attempting to do. Can you please clarify. Have you found the indicators to be helpful? If so, have you thought about why? TYIA

PS Is there any way to automate your strategy? It seems cumbersome to draw divergence lines.

Good thread redfan. TY for starting it.

That was my experience with correlation as well ( with testing, actual correlation indicators became useless in my mind). Any suggestions you can offer on finding the best currency to buy and the best to sell other than just strongest Vs. weakest? I'm not trying to over-complicate things, I'm just interested to educate myself.

So far it looks to me what redfan is showing is using strength indicators and using divergence lines to identify timing (which seems like a fine idea to me). I suspect the correlation indicators are simply to illustrate concepts and not of any practical use. Like I said, I'm open to be proven wrong. I do think it's better to simplify if possible though.

That has always been my issue with strength indicators. As far as i can tell, they do not seem to "normalize" or correct for the difference in pip value between currencies as you put it. I wonder how a programmer could account for that? I don't think it matters with bid/ratio indicators or strength indicators based on bid ratio though? Am i wrong?

When I started this thread, it was because I wanted to try another way of doing it,
I wasn't an expert on correlation trading, it's just that all the sites I visited the only way they were trading it,
was Strong versus weak,
And for the past 12 weeks, I've been looking at charts where you could use an indicator, and where you could see an entry point,
I tried putting divergence lines on charts versus charts instead of putting it on an RSI chart and have had mixed results,
I'm looking at this moment at pairs that are 99% the same Mirror Image,
I look for candle colour,
There seems to be a candle that doesn't conform to the colour pattern and then that develops into an entry point,
the trouble with this system is you have to stare at the screen and wait for every candle to close
to compare it with the candle below, again, I've had mixed results,
But today your input is encouraging,
I can see we've got a wealth of experience,
it's just a matter of time when that experience we all contribute that products A trading idea
that is viable,
I'd like to say thank you to you all for your input

These yellow lines represent where the candles are the same colours,
it's the one hour chart, every single one of them represented an entry point
this was without looking at it any other indicators,