New Year Stress-free trading system for traders with patience

Trading is simple.
Take a view on direction. If you feel lost just toss coin up or down. 50% of time u will be right and 50% of time you will be wrong.
Decide if up or down which percentage line will be TP.
And which percentage line will be SL
Good luck

8 STEPS ... GET READY TO TRADE WITH CONFIDENCE IN LESS THAN 188 MINUTES!


Quoting simnz
{quote} Using your another indicator your just provided I have set up a Big Picture Trading Planning Template for people doing discretionary trades. Indicators are attached. {file} {file} {file} {file} {file} {image}

Hercs, I have used your second indicator to set up a simple trading template for any TF in daily.

This is for training purpose and not trading though I have trained myself by trading this way live on cents contract accounts to feel the psychological impact.

1. Take a view on direction by using a bird's eye view.

https://www.forexfactory.com/thread/...9#post13466429

2. Use the attached "daily - any TF" trading template to trade.



3. Take a view on the probable direction. Without directional bias, you can't trade.
Trading is simple.



If you feel lost just toss coin up or down or push this button
https://www.forexfactory.com/thread/...2#post13363152

4. Ok, do you again feel lost in deciding on profit targets. Here is a solution....
https://www.forexfactory.com/thread/...8#post13363918

It is easier for me to select probable targets for taking profit (TP) or Stop Loss (SL) from

(a) Percentage Lines (attached in previous post)
https://www.forexfactory.com/thread/...9#post13466429

(b) Hilo Percentage levels indicator attached here


(c) Previous closed candles of different TFs
https://www.forexfactory.com/thread/...5#post13332165

Please don't depend on lagging technical indicators or oscillators to help you enter or exit. Had it been so, all technicians would have been millionaires by now.

5. Do you want to know what is an EA and what it does?
EA link: https://www.forexfactory.com/thread/post/13344607#post13344607

6. How will the EA help you?

You love buying low or sell high...
https://www.forexfactory.com/thread/...5#post13363935

7. EA will cure your psychological pain....

You keep changing your mind when the time comes to exit the trade. You make it your ego issue. Market does not care for your ego. It is causing you heartburn and drawdown. Why do you want to suffer this kind of psychological pain? Just handover your fate to TIME.



8. Do you want to look for hot hours to trade? Just trade during those active trading hours.
Scalping on the 5 minute chart with 3 to 4 trades can make up the daily target.
15 m TF can be used for entering trades while getting a feel for direction from 1 hour or 4 hour TF as the roadmap.
Whatever you do, have to be consistent for 5 days a week for short-term day trading..

Look for any vertical timelines indicator on FF and customise it based on opening, closing hours of a few markets and find a time when at least 3 markets are active so that trading activity is intense.





Indicators are not meant for generating signals. Those indicators will PERMANENTLY cripple the mind's capability to take decisions independently

Indicators and EAs that provide information, markers for lines, zones, times and generate statistics or visuals to that effect besides helping manage transactions are most welcome. Round level grid marking kind of indicators are most welcome.

If you have progressed to a level you understand what is ADR and ATR, Support and Resistance zones, then make use of these indicators to mark probable TP and SL targets. Look for markers that give you information ADR, ATR, Yesterday High and Low, Support and Resistance Zones, Semaphores. ALL with closed candle values. Never use dynamic values to mark TP and SL targets.

None of my indicators will make you dependent on them to generate signals.

It is YOU who has to decide on what direction the market will move to.

It is YOU who has to mark probable TP and SL.

It is YOU who has to use EA to learn to trade with Pending Orders.

It is YOU who has to use EA to exit by using TIMEFRAME to force you close your shop.

I have learned my trading by using simple information indicators and my brain knowing well that you will not believe or accept that trading can be that simple.

The irony or beauty of this game is that people spend decades in believing they are quite close to "having arrived" but chose to continue their unending journey on FF instead of on trading platforms.

Correct EA link referred to in the last post

https://www.forexfactory.com/thread/...13344607#reply

If you go through this entire thread, you will get some idea of practice exercises.

Managing mindset to trade with least stress....



If we treat self-directed financial trading as an enterprise, then it becomes easy to make use of Prof Henry Mintzberg's theory of five critical managerial mindsets, out of which three apply to self-learning for trading.

1. Managing oneself (reflective mindset). A reflective mindset allows you to be thoughtful, examine familiar experiences in a new light, and set the stage for developing innovative products and services. In case of trading, the products will be Probability studies, data sets, Indicators and Expert Advisors.
2. Managing organizations (analytical mindset). An analytical mindset ensures that you make decisions based on in-depth data (quantitative and qualitative). It applies to self-directed trading.
3. Managing context (worldly mindset). A worldly mindset helps you operate in diverse regions, with the cultural and social insights needed to serve varied customers.
4. Managing relationships (collaborative mindset). A collaborative mindset fosters relationship-building among the individuals and teams who produce your products and services. Instead of managing people, focus on managing your relationships with them. Lead by engaging them.
5. Managing change (action mindset). An action mindset energizes you to create and expedite the best plans for achieving strategic goals. It applies to self-directed trading.

Financial Trading is not that complex. It's purely speculation and a game of probabilities.
It is rather a technique.

Consistently Trading for profit is totally different the technique. It has a lot to to with Managing mindset.

Handling mindset is of primary importance if you want to be a profitable trader.
Mindset is mostly about Greed and Fear. Which requires training your mind.

I have focussed on training of mindset by intensive practice and using the three ideas mentioned earlier.

Trading with realistic TP based on probability pattern is designed to handle Greed.

And fighting Fear is to practice forced exit. Exit by Time is easy to do and don't have to struggle with your brain. In due course of time you learn how to fix the SL pip size in a realistic way.

In short, the idea is to have both wins and losses. This is another way of making mind accept the concept of Profit Factor rather than just wins.

In order to contain impulsive trading, my total focus is on the use of Pending Orders.

I have surreptitiously tried to train mind without entirely focusing on psychology training, though that is also helpful.

And if you want to be a consistently profitable trader, then you have to practice for years before turning your intuition into a habit. It is like developing a physical exercise regime that sticks.

I am not here to prove something nor win any following. I have provided tools to train yourself and now it's up to you how strongly you feel motivated.

Random Trading vs Planned Trading

This EA , based on entries triggered by ticks, will show you what is random trading -how you can enter during certain hours and without determining any direction.
You can have simple bias for direction entry by splitting the lot in the proportion of long and shorts you want by filtering ticks.

You can have two MT4 demo accounts to run two EAs serving entirely different purposes.

1. One to use the random trading EA to watch what type of entries run rapidly and without any kind of pre-analysis done by you. Random entry in its pure form.
Entry can be by selection of TF and exit also can be by selection of another TF as well in addition to usual TP and SL exit routes.


2. Second one to attach trader tool EA that uses Pending Orders to enter. Which means you have done some kind of analysis about direction and then execute the entries. Entry is by Pending Order and exit can also be defining close TF in addition to usual TP and SL exit routes..

Usage instructions and EA link: https://www.forexfactory.com/thread/...7#post13344607

In order to facilitate Buying and selling directional bias, I have got some modifications done.

Random Trading is my first attempt at capturing my experiences related to trading of spot and options .

I started with options trading for 15 minutes a day for 7 years. I have shared my actual experience with a thread with the following link https://www.forexfactory.com/thread/...s-and-momentum

I have just got Random EA modified to include Direction bias uploaded on the previous post. It is linked to the Time of start and end. Entry and Exit is also by Time (TF).
If my selection of time is OK it will work well. If my market bias for longs or shorts by way of % of lots sticks, it will perform well.

Link is from the previous post. https://www.forexfactory.com/thread/...9#post13488229

Selection of percent of lots is to have some bias for Long or short. Mainly options way of trading. If I select 70% buy I expect the buy cycle to prevail initially and hit all my long 70% entries having smaller TP and then reverse to hit the rest of the short 30% entries whose TP size will become longer depending upon how quickly the buying cycle hits entries. Hopefully, before the exit by TF or SL.

This kind of using 2 cycles will work provided the Broker has a hedging facility on its trading platform with an ability to buy and sell same symbols without liquidating positions and requiring extra margin.

For the netting platform, the percent has to be 0 for it to execute Long and 100 if has to execute Short. Two cycles of buy and sell will not work on FIFO or netting platform.

For entering by direction bias a new input specifies the direction of first trade: Any, Buy or Sell. For the netting platform it has to be either buy or sell. The EA can trigger random entries based on ticks and a time delay if more than 1 entry is involved.

This EA is banking upon your ability to track market moves. The market moves on any single day in both UP and DOWN direction.
Except in instances where the market keeps moving in one direction gaining 100% and giving back 25% or 20% or 10% temporarily by reversals for the day.
Easter Day kind of long holidays provides such opportunities for the market makers to take the markets to a high using 85% in targeted direction to 15% reversal issues and then create volatility both for spot/futures and options traders.

Here you will be steamrolled if you stand in their way. They will execute the trades in such a way you will find it difficult to understand their intentions.

A wrong move and you lose heavily if you have no patience (or rather deep pockets to bear the drawdown) for the reversal to happen. The reversal might take 15 to 180 days to happen.

You can start with a basic premise of how the market will move today first. Long first and correct later. Or reverse first and recover later.

This EA is for traders, like me, who enter the market on that basis without doing any kind of pre-analysis except of keeping a note of probable triggers.

In my case, I have now stopped doing that and have cut down my Screen watching time. I wait for the market to show its hand and then try to jump on the bandwagon. Guessing the moves correctly for 70% of the time is good enough.

I trade index CFDs.

Important for work time is: first hours of spot cash markets open of Japan, Hong Kong, Germany, UK, and USA the intention being to find in M1 or M5 TF opportunities to trade by momentum and or volume. For high liquidity ideal work time is to have a minimum of two cash markets remaining open.

Please note CFD trading hours are different from Cash Market trading hours.

.

Request to coders

The Random trading EA has three start and stop work times. If coders can modify to specify trade entries for each of the work time cycle, that would be great.

In order to. maintain simplicity I am looking for help for control of risk by having Buttons on the chart for

1. Trailing stop
2. Stop trading by Equity profit or loss % or
3. drop in margin%
4. Close all for instant liquidation.

Random EA has been now updated with two different inputs for directional bias.

Signals or entries are triggered not by any indicator but by the user choosing Timeframe to open and Timeframe to close it in addition to the usual TP and SL selection.

This EA is for traders who have a firm idea about when to trade (timing) and with some directional bias.

Traders who know how to estimate trade by Time factor will benefit immensely.

If you select as soon as M1 closes and the second Minute opens, trades will be triggered.

Those using the hedging broker platform can also split the entries in any proportion of buy and sell.

They can select First-way input to start trading with Any, Buy or Sell direction. Ticks will be filtered according to the choice indicated in the First Way.

For netting platform users, additional input of Always-way has been introduced for tradog with firm directional bias Buy or Sell. It will also apply to those opting for random trades triggered by Random Trading switch.

Speed calculator in action...

The EA I got coded from a friend is simple and not complicated at all. It is meant to help sharpen trading skills as well as to empower an experienced manual trader to execute transactions that can't be done easily.

Entry does not require any triggers or signals generation by using a technical strategy or indicator.

Semi-auto Entry is done by a discretionary trader by TIMING it during active trading hours by defining own directional bias. It can be treated as a fast trade execution tool by a trader who has definite views.

Fully automated trading is done by selecting (a) Time to open entries with TF (b) directional bias (c) TF to close positions and optionally whether to trigger both buy or sell at the same and by defining a proportion of Buy and Sell with fixed lot sizes. This optional choice can work only on the hedging platform. This one will help traders understand the importance of the TIME element in trading. Beginners or intermediate traders can treat it as a training tool to see how TIME action rather than Price Action helps in sharpening Timing skills.

The trader who knows how to use TIME ( Hot hours) and has some experience of spotting probable range trading or sideways opportunities will benefit the most.
It requires a trader to conduct a few probability studies to zero in on hours that can be considered active or hot.

A trader who can estimate the speed of the Pips per minute as well as identify range trading or pullbacks happening in a certain time will benefit from two-way trading. Speed calculator in action https://www.forexfactory.com/thread/post/13497307#post13497307

For two-way trades, the drawdown will happen after one side of Buy or Sell hits TP if the bias is for ANY direction; and pullback does not happen quickly enough to hit TP or SL or TF to close all positions in drawdown (temporary loss). In such a situation you will have to manually manage drawdown by closing positions.

Grid trading, grid size progression, Averaging, or Varying lots is not involved because the EA is meant as a trading training tool.

It is a simple EA without having elaborate risk controls, yet it is powerful enough to generate 24% to 60% returns (based on volatile indexes like Dow Jones 30 and German DAX and forex GBPJPY pair) a month if a discretionary trader goes through the essential chores of selecting a suitable symbol, understands the importance of when to trade and when not to trade. Total control over impulsive trading is required if one is looking for substantial returns. Having patience, mind control to wait for the opportunities to happen, and be quick enough to strike while the iron is hot when range trading and pullback opportunities show up. 80% of the time, the market is ranging and it is only 20% of the time that you really can't extract any good outcome by entering in the totally flat market. So in a month, the trading opportunities can be 20% of trending, 40% of range or rotational trading.

The EA is designed by me keeping in view my strategy of extracting pips (a) when the market is volatile (trending or reversing violently) and (b) when the market is range trending or consolidating, OR (c) keep quiet when the market is flat. The pips speed calculator helps me a lot in identifying the flat market.

It is the instant decision of the trader on entry timing that matters most. As long as your directional bias works well for 70% of the time, it is quite good. No one can be right all the time in any kind of financial trading and associated uncertainty environment.

For a momentum trader like me, EA helps substantially by entering multiple lots of positions that can't be done manually.

A trader who has definite views on trading hours patterns can trade fully automated trading. It is not necessary for the EA user to have any directional bias. The EA has two inputs to filter ticks based on the "Any or Buy or Sell " direction for the first trade filtered from ticks. This way, you can go with the market flow except having a bias for the first trade.

If you are on a netting platform, you can use random trading (true) without any direction bias or with buy or sell bias by selecting the choice from another input labelled as Always_ways



Profitability largely depends on
1. Timing of the trade
2. Directional bias chosen
3. Random trading with no direction bias responding to range trading bias.
4. Hours to Trade chosen after identifying some patterns
5. TF selection to open trades
6. TF selection to close trades
7. Size of TP
8. Size of SL

EA is simple and functional. Risk control is only by (a) SL and (b) Stop trades by close of TF.

No breakeven or trailing stops are used for risk control.

Updated EA is attached.

EA is based on filtering trades done by ticks.

TESTING TRADING STRATEGIES ON REAL TICKS
https://www.mql5.com/en/articles/2612

https://quantpedia.com/working-with-...ning-the-data/

Trading is like Sport Fishing

Attached Image (click to enlarge)

Digits Management input in the EA

if =1 than simple point value will be used
Example SL=40
if =10 than SL=400
if =100 than SL=4000
if =0.1 than SL=4

Strategy:
For First Way to work on starting tick randomly is to select ANY
and Always Way also must have ANY selected.
Always Way will always prevail. If Always Way selects Buy or Sell, selecting ANY for the first way will not help.

Salient features of new version of Random EA

Automated

Entry does not require any triggers or signals generation by using a technical strategy or indicator.
Entry can be triggered by the selection of TF instead of any other indicator.
Exit has a new option in addition to TP or SL

Semi-automated

Entry can be filtered by a selection of Consecutive candles. Use_consecutive_candles_way is a filter for use_random_orders
Entry can work in two cycles of Trending and Sideways, Lot_propotion_oposite_percents is for use_random_orders on Hedging platform.

Pending Limit Orders based on Bid Ratio can be generated by defining the minimum volume as the condition for posting pending orders.
All inputs with the random word in the name are for use_random_orders

Work time: 7 Different time slots to trade can be input

1. For both Automated and Semi-auto trades:

TIMING it during active trading hours by defining its own directional bias
Beginners or intermediate traders can treat it as a training tool to see how TIME action rather than Price Action helps in sharpening Timing skills

Fully automated trading is done by selecting
Time to open entries with TF selection

Attached Image (click to enlarge)

2. Semi-automated trading is done by having a directional bias using these inputs

https://www.forexfactory.com/attachm...1&d=1618548892

3. Semi-automated trading: Two cycles of trading can be conducted.
The trader who knows how to use TIME ( Hot hours) and has some experience of spotting probable range trading or sideways opportunities will benefit the most.
It requires a trader to conduct a few probability studies to zero in on hours that can be considered active or hot.
A trader who can estimate the speed of the Pips per minute as well as identify range trading or pullbacks happening in a certain time will benefit from two-way trading. Speed calculator in action https://www.forexfactory.com/thread/post/13497307#post13497307


Whether to trigger both buy or sell at the same and by defining a proportion of Buy and Sell with fixed lot sizes.
This optional choice can work only on the hedging platform.



Grid trading, grid size progression, Averaging, or Varying lots are not involved because the EA is meant as a trading training tool.

It is a simple EA without having elaborate risk controls, yet it is powerful enough to generate 24% to 60% returns (based on volatile indexes like Dow Jones 30 and German DAX and forex GBPJPY pair) a month if a discretionary trader goes through the essential chores of selecting a suitable symbol, understands the importance of when to trade and when not to trade. Total control over impulsive trading is required if one is looking for substantial returns. Having patience, mind control to wait for the opportunities to happen, and be quick enough to strike while the iron is hot when range trading and pullback opportunities show up. 80% of the time, the market is ranging and it is only 20% of the time that you really can't extract any good outcome by entering in the totally flat market. So in a month, the trading opportunities can be 20% of trending, 40% of range or rotational trading.

The EA is designed by me keeping in view my strategy of extracting pips (a) when the market is volatile (trending or reversing violently) and (b) when the market is range trending or consolidating, OR (c) keep quiet when the market is flat. The pips speed calculator helps me a lot in identifying the flat market.

It is the instant decision of the trader on entry timing that matters most. As long as your directional bias works well for 70% of the time, it is quite good. No one can be right all the time in any kind of financial trading and associated uncertainty environment.

For a momentum trader like me, EA helps substantially by entering multiple lots of positions that can't be done manually.

A trader who has definite views on trading hours patterns can trade fully automated trading. It is not necessary for the EA user to have any directional bias. The EA has two inputs to filter ticks based on the "Any or Buy or Sell " direction for the first trade filtered from ticks.
This way, you can go with the market flow except having a bias for the first trade.

If you are on a netting platform, you can use random trading (true) without any direction bias or with buy or sell bias by selecting the choice from another input labeled as Always_ways

Profitability largely depends on
1. Timing of the trade
2. Directional bias chosen
3. Random trading with no direction bias responding to range trading bias.
4. Hours to Trade chosen after identifying some patterns
5. TF selection to open trades
6. TF selection to close trades
7. Size of TP
8. Size of SL

EA is simple and functional. Risk control is only by (a) SL and (b) Stop trades by close of TF.

No breakeven or trailing stops are used for risk control.

Examples:

1.When using Lot-proportion_opposite_percent I want to have a cycle of trend and a cycle of reversal. Both to start not at the same time .

Example: I select 10 entry positions with First_way ANY and All-way ANY.
This means if the First way starts with a Short entry then All-way will follow with Short entries.
which also means if the First way starts with a Long entry then All-Way will follow with Long entries.

I select 60%, for the first cycle and want to trend to happen either by buying (60%) or selling (60%) with the First way.
If the First way goes down-trending then 60% selling happens until all 60% positions ( 6 lots) should exit either by Profit or Stop Loss or TF close.
Immediately after Cycle 1 ends, Cycle 2 of 40% (4 lots) will start in the opposite direction of selling - (which means Buying) and exit by Profit, StopLoss, or TF close.

2. I want to trade for whole day cycle 1 or cycle 2 if I have a definite view of Trend (All way: Buy or Sell)
or Both cycles (60% First Way ANY & All_way ANY if I want to have both trend trading and reversal trading) if I have a view of the Sideways market.

Thanks for the Random EA. I think there are many I can learn.

Can you please help me by backtesting DowJones and German Dax indices symbol for the following?
Before doing so it will be better if you make an indicator/ template with the following timelines marked and share it here.

1. Hot hours
Please note futures (or CFD) and Cash markets have different working times.

You can choose Australia because its CFD open time is very close to the Cash market open time
You can choose other markets whichever you like including forex, commodities, bitcoin etc.

You can get all information about timing, size of the market etc., countdown, etc. from this excellent site
https://www.tradinghours.com/markets...,GMT%2B10%3A00).



Example of Australia index
Monday-Friday:
7:00am - 10:00am — Pre-opening Phase (CFD/Futures)
10:00am - 4:00pm — Normal Trading (Cash market) open - Treat this as the confluence point for other global markets which will influence trading in Australia liquidity when cash markets of Tokyo, Hong Kong, China, Taiwan markets join in during this period.
4:12pm - 4:42pm — Overnight Trading (CFD/Futures)
4:42pm - 6:50pm — Overnight Trading (CFD/Futures)

Types of Correlation

There are three recognizable forms of asset correlation: positive, negative, and no correlation. If two assets’ prices move up or down in the same direction simultaneously, they show a positive correlation, which could be either strong or weak. However, if an asset tends to move down when another rises, then the correlation is negative.

The level of correlation is measured as a percentage figure, from -100% to 100%, also known as a correlation coefficient and it is established by analyzing the historical performance of the assets.

For instance, if two assets have a correlation of 50%, it means that, historically, when one of the assets’ value was rising or falling, there was a corresponding rise or fall in the same direction in the value of the correlated asset, about 50% of the time.

Conversely, a -70% correlation means that analysis of historical market data shows the assets moving in opposite directions at least 70% of the time. A zero correlation means that the asset prices are completely uncorrelated.

This means that the movement of the price of one asset has no noticeable effect on the price action of the other asset. It is also essential to understand that the fact that correlations exist on average over a period of time, does not necessarily mean they exist all the time. Currency pairs or assets that may be highly correlated one year, could diverge and show a negative correlation the following year. If you decide to try out a correlation trading strategy, you need to be aware of times when the correlation between assets is strong or weak, and when the relationship is shifting.

Correlated Assets and Asset Classes

It is common to find correlations between the most heavily traded CFDs of say (a) commodities and currencies (b) stocks and indices. For instance, the Canadian dollar (CAD) is correlated to the price of oil since Canada is a major oil exporter, while the Japanese yen (JPY) is negatively correlated to the price of oil as it imports all of its oil. In the same way, the Australian dollar (AUD) and the New Zealand (NZD) have a high correlation to the prices of gold and oil.
Other common examples of correlated asset relationships include:

1. Airline stocks and oil prices
2. Stock markets and gold ( not always)
3. Large-cap mutual funds generally have a high positive correlation to the S & P 500 index.

Taking note of asset correlations, monitoring them, and carefully timing investment windows are crucial to trading success on the basis of inter-market analysis.

Correlation-Based Trading Strategy

While positive and negative asset correlations have a significant effect on the market, it is vital for traders to time correlation-based trades properly. This is because there are times when the relationship breaks down – such times could be very costly if a trader fails to quickly understand what is going on.

The concept of correlation makes sense for traders/investors who want to control drawdown and keep their margin money machine running.
For me, it's an instrument of money management that helps my brain to focus on what is happening in the market rather than go through psychological pain.

During periods of high market uncertainty, a common strategy is to re-balance a portfolio by replacing a few assets that have a positive correlation with some other assets with a negative correlation to each other. In this case, the asset price movements cancel each other out, reducing the trader's risk, but also lowering their returns. Once the market becomes more stable, the trader can start to close their offset positions. An example of negatively correlated assets that are used in this type of trading strategy is a stock and a Put Option on the same stock, which would gain in value as the price of the security drops.

Why Is Asset Correlation Important to traders/Investors?

Diversification or asset allocation is aimed at combining assets that have a low or negative correlation in order to lessen portfolio volatility. Having a combination of assets with a low correlation reduces the portfolio’s volatility. This gives a trader or portfolio manager room to invest aggressively. What it means is if a trader is ready to accept a certain amount of volatility, then they can put their money into high return/risk investments. This combination of low/negatively correlated assets in order to lower volatility to acceptable levels is known as portfolio optimization.

Risk Management Tips for Correlation-Based Strategies

Sound risk management is essential when making investment decisions in order to lower the adverse effects if you suffer a loss. By using the modern portfolio theory, it is possible for you to reduce your overall risk within your portfolio of assets, and possibly even boost your returns overall, by investing in positively correlated assets.

This strategy will allow you to capture and mitigate for small divergences as the asset pair stays highly correlated overall. As the divergence of the asset prices continues and the correlation begins to weaken, you need to carefully examine the relationship to find out if the correlation is deteriorating. If so, you should exit the trade or take on a different trading approach in reaction to the change in the market.

 

1. What is the most well-known asset correlation?
   Undoubtedly the most well-known, and most traded, asset correlation is that between the U.S. dollar and gold. This is a negative correlation that sees gold rise when the USD falls and vice versa. The reason for this correlation is that gold is priced in USD, so when the USD strengthens gold becomes more expensive outside the U.S. and demand (and thus price) drops. That doesn’t mean you can trade this correlation blindly however. As with most correlations it is not 100% and at times gold and the USD are positively correlated or show no correlation.
   
2. What is inverse correlation?
   When you hear the term inverse correlation it is simply referring to what is also known as a negative correlation. This is when two assets move in the opposite directions from each other, so that when one rises the other falls. Even when there is a strong inverse correlation between two assets it does not mean that there is any causal relationship between the two. Probably the best-known inverse correlation is between gold and the U.S. dollar.
   
3. Does a correlation also mean there is causation between two assets?
   Just because there is a correlation between two assets, whether positive or negative, does not mean that there is any causation between the two. Don’t make the mistake of thinking that the correlation between assets comes because one is causing the other to move. Correlation is simply a relationship between two assets. Causation occurs when the action of one thing causes the behaviour of another and if causation were behind correlation, we wouldn’t ever see a change in correlation between assets.
   

The Final Word

If there is a negative correlation between assets, it means one of the assets’ prices will go up, while the other will likely drop. When you trade each of these assets, you might succeed in any market condition, by avoiding the steep climbs and large dips expected with a single asset type. In the same way, positively correlated assets could enable you to profit from both assets if the price moves in the direction that you speculate.