Do Grid style systems care about correlation?

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?

I should clarify that my grid system places trades up and down on the chart based off of the initial entry point and not on points such as 1.000, 1.1000, 1.2000, etc.. So effectively, I could probably trade the system on eur/usd on two different platforms but with different entry points and still produce different results. My question still stands though. Anyone want to show me why I'm wrong?

hey permanentjaun..... someone here, maybe username drake, wrote up something about correlation that made since to me... can't seem to find that post now....

not really sure how correlation would effect grids on seperate pairs , if at all.... like you said, grids are often just, "purely price action and mathematical'.....

several ea's i run, do take into consideration correlation and place trades accordingly..... those are not grids though.....

it's easy to invision a grid that would take into consideration correlation however..... say for instance, everytime your "correlation grid" ea placed a eurusd buy it might place a usdchf sell.... the grid might place several buys and sells on several different pairs with each of those subordinate orders placed in respect to it's correlation to the eurusd.....h

Well my question wasn't really about how to best enter trades with correlated pairs as you say your ea's seem to do. I was more asking if I should really care about the correlation of pairs with my grid ea in terms of it either hedging or doubling my risk.

I don't think it matters and what I should really be looking at is the correlation of my results. For example, I'm running the same EA on cable and eurusd right now. The movements between the pairs are fairly similar, and for some of the time my EA is placing the same trades on each. There are also plenty of times when my EA has a sell order on one currency and a buy order on the other. So should I really care about correlation between currency pairs? Am I wrong in believing grid style systems are somewhat less prone to correlation disaster?

if you have a working system, i think you're much better off trading uncorrelated pairs.

that way, if you're facing unfavorable market conditions on one pair you're much less likely to face the same on the other... which should provide your system with more longevity.

i don't know specifically how your system works but as i understand them, grid systems fail when the market trends heavily after a reversal (ie, you're riding an uptrend, buying and cashing in on long positions as price moves up, then the trend reverses and trends downward while you're still holding on to that last long position). if you're trading two heavily correlated pairs then this situation will be more likely to happen to both pairs at once.

http://www.fxstreet.com/education/fo...008-01-08.html

that article explains the idea well under "diversification in currency trading".

This is a ruther complex question and would be imposible to answer without knowing the details of the system. The symple answer is YES, corelated pairs should be carefully considered when trading any system and sometimes more so when trading a grid system. To which degree the corelation would affect your bottome line would be hard to answer without having more detail about the system.

HTH