Anyone Really Into Correlation? | Forex Factory

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Anyone Really Into Correlation?

  • #1
  • First Post: Oct 11, 2016 7:21am Oct 11, 2016 7:21am
besides me? I see lots of regular technical analysis and some fundamental ideas, but not a lot of correlation stuff, does anyone else attempt to use it?
big money makes big moves and then hides during small money chasing.
  • #2
  • Edited 9:16am Oct 11, 2016 8:53am | Edited 9:16am
Quoting corrman
besides me? I see lots of regular technical analysis and some fundamental ideas, but not a lot of correlation stuff, does anyone else attempt to use it?

I've looked at it a bunch. it is elusive. My 2 cents is that you need to see correlation of ALL the currencies.... that kind of harmony makes for the easy trading days, whatever method you are using. alteratively correlation can been sen when multiple currencies find support & resistance AT THE SAME TIME.

thing is when 2 pairs are perfectly correlated, theoretically, we can predict the turn around back into the trend from one currency by the turn around back into the trend of the other currency.(Pivot candle). whatever happens first. trade the other. the challenge is that it does not always work, so it must be with the trend f higher timeframe & trade with the lower timeframe.. i never took it far enough though to be honest, because i did not have indicators to do so. it would be some work to make them. also its difficult to stick to one system like that with patience.
  • #3
  • Edited 10:53am Oct 11, 2016 9:54am | Edited 10:53am
There are may threads about correlation.

1-2 years ago I studied cointegration to developed a simple stat arb model that also involved momentum. It was as simple as doing 1+1.

However I don't use it anymore mostly because I'm unable to backtest it.
  • #4
  • Oct 11, 2016 11:38am Oct 11, 2016 11:38am
The correlations are important factor in my trading methodology. There are several different types of correlations which I use on a daily basis.

1. Tripod correlations. I always look at multiple pairs in order to find which currency is the actual mover.
For example if you see GBPUSD going up and there is no news, you have to look at GBPJPY and EURGBP to determine if GBP is being bought or the move is caused by selling in USD.
Same thing with the other currencies. EURUSD + EURJPY+USDJPY or AUDUSD+AUDJPY+USDJPY ............
And if all major pairs (EURUSD+GBPUSD+USDJPY+AUDUSD+USDCAD) are moving together - then you know that this is USD related.

2. Correlation between related markets.
Oil and CAD (CAD follows the price of Oil)
Gold and AUD, Gold and NZD
Milk prices and NZD....

3. Fundamental correlations (risk related)
VIX/Stock indexes and JPY(also gold). When the stock markets are falling fast, people panic and look for "safe havens" . So they buy JPY and gold. Previously CHF was the major safe haven....But now not so atractive because of the negative rates.
  • #5
  • Oct 11, 2016 12:29pm Oct 11, 2016 12:29pm
@ dagoods, yes when one correlates but is lagging, it's pretty nice

@ HeyYou, I wonder how much arb is going on

@ alphaomega, I'll need to put up more charts for to see them at the same time, especially since I've been attempting to correlate oil and CAD, but like you said, if there is multiple correlations with USD, then oil may not be affecting it, that is actually what just happened to me in my last trade stop out, with this leg down in GPBUSD, it lifted USD enough to cancel out the oil CAD correlation that I was trading which began to work but with GPBUSD hard fall 2225 to 2150, my short of USDCAD was doomed.

Thanks for replies
big money makes big moves and then hides during small money chasing.
  • #6
  • Oct 11, 2016 1:08pm Oct 11, 2016 1:08pm
Quoting corrman
@ dagoods, yes when one correlates but is lagging, it's pretty nice @ HeyYou, I wonder how much arb is going on @ alphaomega, I'll need to put up more charts for to see them at the same time, especially since I've been attempting to correlate oil and CAD, but like you said, if there is multiple correlations with USD, then oil may not be affecting it, that is actually what just happened to me in my last trade stop out, with this leg down in GPBUSD, it lifted USD enough to cancel out the oil CAD correlation that I was trading which began to work but...

one is always lagging the other one, if they are correlated. That is the essence of it all. If someone is willing to volunteer to make a better co integration indicator we can get a great rocking system made from it IMO. The code looks fine but the way it is presented is not useful. I can show you what I'm saying.

http://www.forexfactory.com/showthre...24#post8443324 an overlay indicator makes it visually obvious when to trade... it should look like an overbought oversold indicator like what a stochastic looks like. it has to be very visually simple.

http://www.forexfactory.com/showthre...99#post8376599

cointegration indicator done to generate signals like that may be the grail...who knows.
  • #7
  • Edited 1:42pm Oct 11, 2016 1:11pm | Edited 1:42pm
Quoting corrman
@ HeyYou, I wonder how much arb is going on
Just looking for a pair "mean reversing" when momentum occurs on another pair, took me couple hours of charting to develop, is there potential Idk.

Quoting dagoods
{quote} one is always lagging the other one, if they are correlated. That is the essence of it all. If someone is willing to volunteer to make a better co integration indicator we can get a great rocking system made from it IMO. The code looks fine but the way it is presented is not useful. I can show you what I'm saying. http://www.forexfactory.com/showthre...24#post8443324 an overlay indicator makes it visually obvious when to trade... it should look like an overbought oversold indicator like what a stochastic looks like....
interesting stuff ! thanks.
  • #8
  • Oct 11, 2016 1:50pm Oct 11, 2016 1:50pm
Quoting HeyYou
{quote} Just looking for a pair "mean reversing" when momentum occurs on another pair, took me couple hours of charting to develop, is there potential Idk. {quote} interesting stuff ! thanks.




I'm making a coder request!
http://www.forexfactory.com/showthre...70#post9192270
  • #9
  • Oct 11, 2016 6:21pm Oct 11, 2016 6:21pm
correlation is my main tool and price action with a momentum indicator just confirms the trade.
this is one example for USD correlation, all usdx pairs are mirrored.
Attached Image (click to enlarge)
Click to Enlarge Name: cc.PNG Size: 146 KB
  • #10
  • Oct 12, 2016 1:12am Oct 12, 2016 1:12am
@corrman On what timeframes do you use correlation and and how many data points do you use for correlation coefficient?
  • #11
  • Oct 13, 2016 10:00pm Oct 13, 2016 10:00pm
I use a correlation indicator in thinkorswim on 5m chart with 10 period range, I also have comparison symbol overlayed on chart mostly with the pair that directly correlates, so with CL, I'll overlay 6C rather than usdcad, same with ZB and 6J rather than usdjpy. Can't use mt4 w my account either. I used to use it, but got used to using what my broker forced me to use currently, which is ok since I'm not automating. I still have to find the right patterns but waiting for convergence with something keeps me out a lot more which helps since my success rate was so low, but I still just scalp it since my edge doesn't last more than a few bars. Trading is still just as much of a challenge as usual, but every little bit helps.
big money makes big moves and then hides during small money chasing.
  • #12
  • Oct 15, 2016 1:56am Oct 15, 2016 1:56am
On M5, from February to September
Open a trade when correlation go from 50 to 80,

If correlation drop to 60, exit

If correlation goes to 90 then back to 80, exit


I choose AUD, NZD, JPY, USD because of carry trade.

Best period for AUD is 36 = 3 hours, NZD is 2 hours

Attached File(s)
File Type: txt PAIRS TRADING.txt   7 KB | 816 downloads


Sample:
Inserted Code
36
AUD
Corr( JPYAUD, USDAUD )
Long Resut =    15.13, Short Resut =   -14.30, Total Trades =      333
Corr( USDAUD, JPYAUD )
Long Resut =     5.14, Short Resut =    -4.79, Total Trades =      333
Corr( AUDJPY, AUDUSD )
Long Resut =   -16.77, Short Resut =    17.61, Total Trades =      331
Corr( AUDJPY, USDJPY )
Long Resut =    -4.51, Short Resut =     5.02, Total Trades =      390
Corr( AUDUSD, JPYUSD )
Long Resut =    -0.83, Short Resut =     0.92, Total Trades =      207
When you lose, I'm the loudest who laugh at your face )
  • #13
  • Oct 15, 2016 2:10am Oct 15, 2016 2:10am
Forget to add this:

Inserted Code
15.13 is 15.13%, 0.1% = 790 pips (5 digits) if AUDJPY = 79. Then
Inserted Code
15.13 x 790 = 11952.7 pips

When you lose, I'm the loudest who laugh at your face )
  • #14
  • Oct 15, 2016 9:14am Oct 15, 2016 9:14am
hi

i only trade with correlation at least we know what the market doing and how long we can run the trade .


Attached File(s)
File Type: ex4 FXCORRELATOR_8020_SYSTEM_DO NOT RESELL OR COPY_V1.ex4   8 KB | 612 downloads

Attached File(s)
File Type: ex4 FXCORRELATOR_BASIC_FREE_VERSION.ex4   8 KB | 607 downloads

Attached File(s)
File Type: ex4 Gadi_Currencies _v2.8.ex4   11 KB | 549 downloads

Attached Image (click to enlarge)
Click to Enlarge Name: ScreenShot_20161015221050.png Size: 215 KB
  • #15
  • Oct 16, 2016 12:16am Oct 16, 2016 12:16am
Quoting HeyYou
There are may threads about correlation. 1-2 years ago I studied cointegration to developed a simple stat arb model that also involved momentum. It was as simple as doing 1+1. However I don't use it anymore mostly because I'm unable to backtest it.
The thing is, simple arb model is difficult to work anymore because of the widespread of algos. They are always ahead of you and one might benefit occasionally with a good model but over time it's difficult to profit consistently, especially in the short term timeframe.
  • #16
  • Oct 16, 2016 3:37am Oct 16, 2016 3:37am
I use correlation as input to my scalping and swing trading systems.

I have a multi-time frame correlation indicator you may find useful. Here is a screenshot of it in action:

Attached Image (click to enlarge)
Click to Enlarge Name: 1.2.4_release.png Size: 123 KB


The latest version can be downloaded from this post: http://www.forexfactory.com/showthre...56#post9071856

I've been meaning to add some extra functionality to the public version that optionally applies de-trending to the input data before correlating it .... hopefully soon I'll have time.
  • #17
  • Oct 17, 2016 5:50am Oct 17, 2016 5:50am
I have traded for over 14 yrs and always trade with correlation in mind.

I personally believe you need to have all tools at your disposal to become a successful trader.

If you are interested in trading correlation, watch the markets and how well they correlate over major economic announcements from the US ( Non-Farm, Fomc etc ).

Also in high volatility periods.

Happy to discuss.
  • #18
  • Feb 26, 2021 7:54pm Feb 26, 2021 7:54pm
I really enjoy basket trading, using correlations. Would love to see this thread revitalized.
  • #19
  • Mar 1, 2021 6:10am Mar 1, 2021 6:10am
Wanna make money, you should know how to trade on corrections. Any trend can be divided into segments, which will be corrections and impulses, which can be divided into smaller segments. We live in a world of patterns.
  • #20
  • Mar 1, 2021 8:33am Mar 1, 2021 8:33am
Correlation is like a butterfly effect. If somewhere the trends are going in one direction, then somewhere else the trends are going in the opposite direction.
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