Using usd/chf - eur/usd correlation to see moves in EUR/USD | Forex Factory

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Using usd/chf - eur/usd correlation to see moves in EUR/USD

  • #1
  • First Post: Jun 10, 2009 12:37pm Jun 10, 2009 12:37pm
Place this indicator on a 1 min eur/usd chart.

It seems that when correlation readings dip for a few bars, that big movements later follow on eur/usd. The indicator measures correlation with usd/chf.

I started noticing this kind of by mistake looking at another system

Is anyone else seeing this? Maybe this is actually showing when big money USD traders are positioning themselves??
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Attached File(s)
File Type: ex4 Correlation.ex4   5 KB | 1,869 downloads
  • #2
  • Jun 10, 2009 12:47pm Jun 10, 2009 12:47pm
How do we read this indicator? What is it showing?
  • #3
  • Jun 10, 2009 12:48pm Jun 10, 2009 12:48pm
Quoting Blud4oilPrgm
Place this indicator on a 1 min eur/usd chart.

It seems that when correlation readings dip for a few bars, that big movements later follow on eur/usd. The indicator measures correlation with usd/chf.

I started noticing this kind of by mistake looking at another system

Is anyone else seeing this? Maybe this is actually showing when big money USD traders are positioning themselves??
I have noticed that and spent quite a bit of time looking at it.
The problem I found is that you don't know which way the break will come.

You're still left with the same thing without the indicator.

It will either go up or down and you don't know which.
  • #4
  • Jun 10, 2009 12:51pm Jun 10, 2009 12:51pm
Quoting Dreamliner
How do we read this indicator? What is it showing?
It's showing correlation.
EUR/USD - USD/CHF should have a strong negative correlation. That is shown by the long red bars on the indicator.
When the indicator approaches zero, it means the negative correlation has left. It can be expected to return.
  • #5
  • Jun 10, 2009 12:52pm Jun 10, 2009 12:52pm
Quoting Dreamliner
How do we read this indicator? What is it showing?
if cor. is less than -.8 then there is strong eur to chf correlation

http://www.forexfactory.com/showpost...&postcount=232
  • #6
  • Jun 10, 2009 12:55pm Jun 10, 2009 12:55pm
Quoting billbss
It's showing correlation.
EUR/USD - USD/CHF should have a strong negative correlation. That is shown by the long red bars on the indicator.
When the indicator approaches zero, it means the negative correlation has left. It can be expected to return.
That's true. I've been on the band wagon with this trendmagic indicator and thought this might be an extra edge for that way of trading.

Maybe you could use the area that this happens on as a support/resist. area and buy/sell a breakout or breakdown
  • #7
  • Jun 10, 2009 12:59pm Jun 10, 2009 12:59pm
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For example If I went short when the trend indicator turned red, at least this time it would have been an excellent profit area..
  • #8
  • Jun 10, 2009 1:05pm Jun 10, 2009 1:05pm
In this example from today, the trendmagic indicator would have me go short around 18:45, close to the same time as the correlation comes apart.

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a very nice drop following
  • #9
  • Jun 10, 2009 1:21pm Jun 10, 2009 1:21pm
You're aware that the TrendMagic repaints?
If you're looking back on charts, it doesn't mean much.
  • #10
  • Jun 10, 2009 1:28pm Jun 10, 2009 1:28pm
Quoting billbss
You're aware that the TrendMagic repaints?
If you're looking back on charts, it doesn't mean much.
I haven't noticed that but maybe I haven't used it long enough
  • #11
  • Jun 10, 2009 1:34pm Jun 10, 2009 1:34pm
I guess the point I was trying to make is that whatever system you use, this may add a a bit of conviction that a move will happen soon. I also use a 1-tick eur/usd system in Ninjatrader that this may be useful with.
  • #12
  • Jun 10, 2009 1:41pm Jun 10, 2009 1:41pm
Quoting Blud4oilPrgm
I guess the point I was trying to make is that whatever system you use, this may add a a bit of conviction that a move will happen soon. I also use a 1-tick eur/usd system in Ninjatrader that this may be useful with.
It sure may.
There should be a way to harness it.
  • #13
  • Jun 10, 2009 1:50pm Jun 10, 2009 1:50pm
I'm actually going to start trading the method that Paulus and TG have going right now. I will just be looking at e/u so if I use this indicator, when the gap forms, that means that a possible nice move is coming? Am I correct? Of course, we won't know which way but maybe if it's combined with an entry from Paulus' method, it could be a strong signal.
  • #14
  • Jun 10, 2009 1:56pm Jun 10, 2009 1:56pm
Quoting Siuol
I'm actually going to start trading the method that Paulus and TG have going right now. I will just be looking at e/u so if I use this indicator, when the gap forms, that means that a possible nice move is coming? Am I correct? Of course, we won't know which way but maybe if it's combined with an entry from Paulus' method, it could be a strong signal.
It means that a strong move MAY be coming.

Either USD/CHF, EUR/USD or both will move. You don't know which.

The best way to trade it might be to watch both pairs. If you see the correlation approach zero- wait for it to break down and see which pair moves and in which direction.

I watched this for about a week and could never put it together for trading purposes.

Maybe someone else can.
  • #15
  • Jun 10, 2009 1:58pm Jun 10, 2009 1:58pm
Thanks for clarifying that for me. I meant to say MAY and not IS. I will see what I can see from it.

Quoting billbss
It means that a strong move MAY be coming.

Either USD/CHF, EUR/USD or both will move. You don't know which.

The best way to trade it might be to watch both pairs. If you see the correlation approach zero- wait for it to break down and see which pair moves and in which direction.

I watched this for about a week and could never put it together for trading purposes.

Maybe someone else can.
  • #16
  • Jun 10, 2009 2:01pm Jun 10, 2009 2:01pm
Quoting Siuol
I'm actually going to start trading the method that Paulus and TG have going right now. I will just be looking at e/u so if I use this indicator, when the gap forms, that means that a possible nice move is coming? Am I correct? Of course, we won't know which way but maybe if it's combined with an entry from Paulus' method, it could be a strong signal.
That's how i'm interpreting it, but need to analyze it more on a 1 min chart, any one day can be a stray datapoint.

Maybe a system could be generated if you placed sell order just below next lower fibonacci level / buy order just above next higher fib level? I'm looking into this next am using the attached indicator for daily fibs
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File Type: ex4 AutoDayFibs.ex4   8 KB | 857 downloads
  • #17
  • Jun 10, 2009 2:11pm Jun 10, 2009 2:11pm
That sounds like a valid idea with placing your orders above and below the next closest fib levels. Maybe you could even treat it as a box breakout method and when the gap forms place a buy 10 pips above where price is and a sell 10 pips below. Same as the fib leves kinda but it may garner a few more pips but a few more pips on the losing side if things don't go your way.

Quoting Blud4oilPrgm
That's how i'm interpreting it, but need to analyze it more on a 1 min chart, any one day can be a stray datapoint.

Maybe a system could be generated if you placed sell order just below next lower fibonacci level / buy order just above next higher fib level? I'm looking into this next am using the attached indicator for daily fibs
  • #18
  • Jun 10, 2009 2:43pm Jun 10, 2009 2:43pm
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nice pop here after de-correlation, notice that when it happened price was a lot closer to the higher fib (1.39686) than the lower fib (1.39145), this time it breaks the higher bound.

I also use spudFibo
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File Type: ex4 #SpudFibo.ex4   9 KB | 806 downloads
  • #19
  • Jun 10, 2009 7:57pm Jun 10, 2009 7:57pm
I'm noticing a somewhat similar pattern on these two. I have gbp/jpy on the chart and eur/jpy in the correlation indicator.

You can go here and get the hourly correlation values for all pairs:

http://www.mataf.net/en/tools/correlation-table

Gbp-eur/jpy have have 86% positive correlation so I think it's a good candidate.

2 observations:
a)
1) Consolidation of either an up or down trend
2) Decorelation
3) Reversal

b)
1) Strongest trending moves seem to be when correlation is maxed out, for the most part (the red bars go higher)


In the indicator properties you'll see where to change the correlated pair. Increase the "CaclBars" value to look at candles further into the past.

One more thing, in some instances it looks like there are varying intensities of decorelation within a trend, they are self repeating.. (think of a fractal)

I'm also seeing decorelation seems to happen a lot towards the end of a trend, almost like it gets "tired" sometimes when decor. happens...
  • #20
  • Jun 11, 2009 12:23am Jun 11, 2009 12:23am
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this is excellent, it stopped right at a fib level
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