methods to determine correlations and exact strength | Forex Factory

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methods to determine correlations and exact strength

  • #1
  • First Post: Oct 9, 2014 11:11pm Oct 9, 2014 11:11pm
have you ever think about correlation to use it for finding exact strength behind the currency pairs. hukam
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hey hukam...... have i ever...... just about everyday...... how were your figuring on determining the correlation and/or strength.....

some things i have tried......

summing the values for per indicator or signal per currency..... such as, summing the awesome indicator value for each of the euro pairs, then plotting it.... the euraud chart below has the eur 'combined stoch, awesome, and wpr on the chart.... the euraud's awesome is histogram and the combined eur awesome is the lime line....

then i would sort each by value, such as very poorly seen here....... talk about a crappy video......... what you can't see is the pairs are being sorted by strength on 5 timeframes..... it helps to color code the currencys....
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sorting by a single indicator on a single timeframe, such as relative strength, has not been helpful to me......

i've done this for virtually indicator or signal.... this includes obscure indicators like td sequential.....

have also summed every signal per pair and per currency to get an idea of the number of signals per timeframe..... along with maximum and minimum price excursions during the signals life...... here you would sort inversely to determine strength....
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if you , or anyone else, has an idea or method just holler and we can try it out..... worst we can do is lose money.....h
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Attached Image (click to enlarge)
Click to Enlarge Name: combined.png Size: 52 KB
to trade and code, keep both simple... no call to impress....h
  • #2
  • Oct 9, 2014 11:54pm Oct 9, 2014 11:54pm
Quoting hayseed
have you ever think about correlation to use it for finding exact strength behind the currency pairs. hukam //------ hey hukam...... have i ever...... just about everyday...... how were your figuring on determining the correlation and/or strength..... some things i have tried...... summing the values for per indicator or signal per currency..... such as, summing the awesome indicator value for each of the euro pairs, then plotting it.... the euraud chart below has the eur 'combined stoch, awesome, and wpr on the chart.... the euraud's awesome is...
I see what you say. DXanatos done it. Then i realised i was trading blindly before.. Big picture in the market
Neural Network Algorithm and Econophysics
  • #3
  • Oct 10, 2014 3:52am Oct 10, 2014 3:52am
You cannot sum indicators over all the EUR pairs. Doing so you add pears and apples. E/U is in US dollar and E/J is in Yen. Any indicator derived from the price will have values derived from the counter currency. USD and Yens are different by two orders of magnitude. You have to get rid of the currency in the formulas you use.

I estimate the daily strength only not MTF. I use the daily data to estimate the correlation because it is the TF where this estimate is the cleanest.

I used to use a Kalman filter as the indicator to estimate the trend of a pair. Unfortunately is lags to much. I changed for a simpler and less laggy estimator. The lag is 5 days (I oversample by using hourly data). If you or anyone is interested I may post the formula with the explainations (but don't expect a mq4 file from me).
No greed. No fear. Just maths.
  • #4
  • Oct 10, 2014 4:19am Oct 10, 2014 4:19am
HI Hayseed,

I used to enjoy using what I coined as the "odd one out" theorem... I'd take 3 common currencies and throw them against an independent.
E.G; EUR/USD, EUR/JPY and EUR/AUD. Then I'd look for absorption or expansion... i.e "the odd one out"..
A times it can seem a very good measure of strength or weakness but I ceased to use this method of analysis as I found that if I saw this strength or weakness then that is what happened.. But not necessarily what will continue to happen if you catch my drift.

I used all sorts of different measures and spent months on it but in the end despite me wanting to own it, it owned me. I never quite cracked it, but it was an exciting philosophy to explore.
Small note.. We deal in RATES not PRICE with currencies..

These days I enjoy looking at the basket in the same sense but as a danger measure rather than pleasure potential. like if you get a short signal on the GBPJPY ofr example yet every other GBP cross has well and truly sold off and the GBPJPY is the lagger, then unless the JPY side of the equation is the opposite, I would be very wary of taking that trade. But perhaps this could be used in the opposite way?

great luck shap
  • #5
  • Oct 10, 2014 6:36am Oct 10, 2014 6:36am
Quoting PipMeUp
You cannot sum indicators over all the EUR pairs. Doing so you add pears and apples.
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hey pipmeup..... actually that is exactly what i'm doing and it is basically what the most common strength gauge, simeom semenych's ccp, does.....

i am not summing the combining prices of all the eur pairs but summing each individual pairs indicator value..... and then plotting them in a wide variety of manners.....

it seems to work.....h
to trade and code, keep both simple... no call to impress....h
  • #6
  • Oct 10, 2014 6:54am Oct 10, 2014 6:54am
Quoting Kong
HI Hayseed, I used to enjoy using what I coined as the "odd one out" theorem... I'd take 3 common currencies and throw them against an independent. E.G; EUR/USD, EUR/JPY and EUR/AUD. Then I'd look for absorption or expansion... i.e "the odd one out"..
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hey kong..... me too..... the difference is i always look at the same 26 pairs or in currency groups, such as all eur pairs, all jpy pairs, all usd pairs and so on.....

if lookin at the jpy pairs, the chart below shows the 'odd one out' is the usdjpy......

the safest bet for me, if there is such a thing, is to avoid such occurrences......h

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Attached Image (click to enlarge)
Click to Enlarge Name: odd man out.png Size: 47 KB
to trade and code, keep both simple... no call to impress....h
  • #7
  • Oct 10, 2014 7:29am Oct 10, 2014 7:29am
Hi again hayseed :-)

I thought that the way to gauge it is to look every currency index alone in daily timeframe .. if eur is strong and usd is strong then its a sideway market, if eur is strong and usd is weak eurusd has tendency to go up and so it goes on.. I bought one strength meter that shows supposedly strong and weak, it has some merits but you have to know your p's and q's since the move can be slow to start with but it 'shows' you (I use that term very loosely) the strongest and the weakest - anything between ignored (by me that is). So I can pick the one currency (not pair) on the each end and go from there. I have not been too impressed by it though, too vague, so it would be nice to see something more sharp (at least within few day time frame ).

I am very much looking forward learning from you and thank you very much for your time and generosity (indis, videos, links and intellectual property ), much appreciated :-)

cheers
hannele
  • #8
  • Oct 10, 2014 8:36am Oct 10, 2014 8:36am
Quoting hannele
Hi again hayseed :-) I thought that the way to gauge it is to look every currency index alone in daily timeframe .. if eur is strong and usd is strong then its a sideway market, if eur is strong and usd is weak eurusd has tendency to go up and so it goes on..
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hey hannele..... it's been my experience that your correct, the daily timeframe should be looked at first and given proper respect..... to fine tune entrys with least possible drawdown, seemingly impossible, entering with consideration to the lower tf's 240,60 and 30 seems to keep me out of hot water.....

in one of the charts below, the currencys, currency index's, are sorted on 5 timeframes.... the yen is the strongest on 3 tf's but being beat out by the usd on the daily which correlates with the chart posted above.....

should have mentioned on the chart above, in the rows of dots each dot represent each bar for each pair in order with the most recent bar being under the letters 'tsr'..... so as of when that picture above was made, the lowest pair, 'eurcad', shows a single red dot which signals a possible new downtrend..... which now a few hours later has come to be..... below is the latest screenshot.....h
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Attached Image(s) (click to enlarge)
Click to Enlarge Name: mini strength.png Size: 87 KB
Click to Enlarge Name: update.png Size: 50 KB
to trade and code, keep both simple... no call to impress....h
  • #9
  • Last Post: Oct 10, 2014 5:58pm Oct 10, 2014 5:58pm
Quoting hayseed
{quote} //----- hey kong..... me too..... the difference is i always look at the same 26 pairs or in currency groups, such as all eur pairs, all jpy pairs, all usd pairs and so on..... if lookin at the jpy pairs, the chart below shows the 'odd one out' is the usdjpy...... the safest bet for me, if there is such a thing, is to avoid such occurrences......h //------ {image}
Amazing application you've created there, I'm old school, nothing but a naked chart for me, with a few guide lines here and there.

Another thing I used to look at was basket accumulation and distribution where (when you see this happening it is very accurate, obvious and a great trade) .. A currency would move against different crosses almost at random but each one faking out. I liken it to the currency "taking a drink" probably into stops or executing market limits. So picture your correlated basket in perfect sync due to a strong movement in one particular currency (like a strong selling off of the EUR) and now all EUR pairs are in sync and heavily correlated.. Now the correlation breaks down and the EUR pairs kind of take tuns dipping to new lows then retreating back up (like a fake out, or false break). SO this will happen on just one EUR pair, then a different one then a different one etc.

What you're seeing here is accumulation of EUR across the basket as who or whatever is causing this starts selling different currencies to gain EUROS.
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