Correlation Trading - Basic Ideas and Strategies

This is a discussion on Correlation Trading - Basic Ideas and Strategies within the Forex forums, part of the Markets category; Hi NVP ... (still wondering what "NVP" stands for!) I don't understand the benefit ... I mean, I don't understand ...

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Old Aug 28, 2009, 11:56am   #31
 
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Hi NVP ... (still wondering what "NVP" stands for!)

I don't understand the benefit ... I mean, I don't understand how the correlation charts work, or what they do. Could you please give an example of how it works?

I am off to work shortly, and will also be chilling out on the weekend.

But I'm looking forward to further discussion on this early in the new week.

Thanks for all your work here - good stuff.

Chers and best wishes

Ivan
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Old Aug 28, 2009, 12:53pm   #32
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the Weekly EUR CHF 14th Dec 2008

NVP started this thread In the chart(s) below, I have shown some subtle differences in the WEEKLY charts.

I think when looking at these divergances on the 1H TF, the opportunity must surely pop out at you n'est ce pas?[/QUOTE]


Hi Ingot54........its lunchtime so time for some posting !

I have had a look at your post and weekly chart and just some thoughts / observations as I would have read it.........(see the attached below)...unfortunately I do not tend to extend to weekly charts on my indicator as with a 200Ma standard setting the 4h's are quite long enough for my taste

looks like these Bars were around Mid Dec 2008 so i have commented on this period of time.........

Chart 1 attached is my standard 200/3 on the 4h so we can see what was happening

Boy the Euro(Blue) was doing well ! (I remember that time as we went on holiday to Europe and it cost me a fortune in sterling tems )...I would have been recommending a strong buy against (Guess) the USD/Yen until such times as it looked overbought.....sorry not sure if it was at the time....the EURCHF things was interesting (See Below) but not on my radar until Euro started Falling (as it is more volatile than the CHF)

Chart 2 now gets closer to your weekly chart and observation of the Bar movements....
the 14th Dec 2008 week was actually when the CHF started fighting back against the Euro and bounced off its 200ma into a nice nice move downwards (left hand chart)

EDIT ENTRY !
SPOTTED MISTAKE ON CHART 2 - SHOULD READ EURO OVERBOUGHT to CHF (DOH!) - sorry

on the right hand side this was "spotted" on the shorter TF 4h's as the Euro was showing as potentially overbought against the CHF and a reversal/Correction may be imminent

Buy CHF Sell Euro as the yellow line started falling back downwards.......to be honest in Chart 1 there was plenty of signals out there re buying these guys whilst selling USD or Yen so i might have ignored this opportunity.....interestingly the big money got made on the EUR/CHF play when they both reveresed in Strength vs the USD/YEN (this is common as the stronger currency driving the divergence suddenly folds against everyone, not just the targeted Currency in Question)

Now in truth its not this easy......MA's can make everything look simple and in reality the opportunity has gone before the trading signal has materialised......but i'm just using this as Demo only to comment on the Charts you posted

Thats the beauty of Trading ...you can make money a lot of ways (and lose it of course)

Neil
Attached Thumbnails
fxcorrelator_14dec2008_chart-1.jpg   eurchf-14th-dec-2008-chart-2.jpg  
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Old Aug 28, 2009, 12:57pm   #33
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I thought that correlation and inter-market analysis factored only in decision making decision making... :-/ If you're making trades based on correlation shouldn't you just pick the ones that offers the highest return for the least risk and size accordingly otherwise you're just paying twice the commission.
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Old Aug 28, 2009, 1:10pm   #34
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Nvp ?.......

NVP started this thread Hi Ivan

using Dynamic and innnovative thinking...........its my initials (!!!)
if only my trading plans were that logical

Without going through all your posts I have to ask the obvious....is that you and if so do you work on Fishing Trawlers ? (and there we were getting on so well)

Neil

PS the Avatar is the earliest example of Correlation Charts by a chap called
Jackson Pollock.....unfortunately he tried to corrolate 80 Global currencies on one chart and it looked like this.............Still got about $40m for it at last auction I believe, so hope for us all !
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Old Aug 28, 2009, 1:16pm   #35
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More info.........

NVP started this thread
Quote:
Originally Posted by Technically Fundamental View Post
I thought that correlation and inter-market analysis factored only in decision making decision making... :-/ If you're making trades based on correlation shouldn't you just pick the ones that offers the highest return for the least risk and size accordingly otherwise you're just paying twice the commission.
Hi TF and welcome !

Please could you elaborate a little here......I can then show my lack of knowledge in so many areas of this subject and call for help !

Neil
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Old Aug 28, 2009, 1:58pm   #36
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I don't know much about it myself mate, I'm just learning like you.
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Old Aug 28, 2009, 2:44pm   #37
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Ha Ha

NVP started this thread Well TF

until ingot54 gets home from work we have no one else to help us do we (ha ha ha )

Neil
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Old Aug 28, 2009, 3:02pm   #38
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NVP started this thread http://www.trade2win.com/boards/fore...-strategy.html

sorry this has been posted twice !!!!

Last edited by NVP; Aug 28, 2009 at 3:04pm. Reason: Being stupid
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Old Aug 28, 2009, 3:03pm   #39
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Gone Fishing.....

NVP started this thread hmmm - This looks interesting...and some Heavy dudes involved in the Discussions

http://www.trade2win.com/boards/fore...-strategy.html

seems to have gone flat though Despite some superb (non) comments from me at the time

Neil

Last edited by NVP; Aug 28, 2009 at 3:29pm. Reason: Realised I was involved in that thread !
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Old Aug 28, 2009, 3:43pm   #40
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checkout Post #23 in above

NVP started this thread Hoorah - thanks Anna at last an explanation for this pitiful Thread......

correlation currencies currency trading pairs correlate euro dollar dollar swiss positive negative

this outlines the Grid references earlier in thread and the +/- percentages that most people associate with correlations.....and theres a Breadmaking page !

I will show you how these apply to my FXCORRELATOR chart Next

more hunting, hunting...........
Neil
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Old Aug 28, 2009, 4:02pm   #41
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Not sure about this bit though........

NVP started this thread This attachment from Webpage above shows the correaltion Grids......but this is probably why most people's eyes glaze over when it comes to this powerful weapon !

I've highlighted in blue one correlation line....

the AUS/USD vs the EUR/CHF = +0.9 on an annualised basis....

Dont get me wrong this is pukka information and well presented - however - I prefer the FXCorrelator......it tells me each currency as a standalone entity and I do my correlating vs other currencies on the Chart by eyeballing them in the Moving average lengths and timeframes of my choice..

In my world the AUS generally moves opposite to the USD and the EUR/CHF....well you know about their love affair already !

let me post you what I mean re FXCorrelator and +/- correlations
Neil
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correlation-grid.jpg  
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Old Aug 28, 2009, 4:34pm   #42
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Usual correlations vs the FXCORRELATOR

NVP started this thread ok...running out of time now as i'm off for long weekend with the wife, so this
could be last until Tuesday (thank god they cry)

following on from previous comments please look at the Attachment and tell me the correlations for each Letter/area........

Scores
that is 100% = exactly correlating (say 50% = not really correlating)
Plus = in the same direction
minus = in the opposite correlation

therefore I am hopeful that based on my waffle in the early posts we will get some decent high % positve scores for Euro Vs CHF and likewise the USD vs the YEN

to make it a real Test I will publish answers in next post

this is 200ma and 13 Delta (smoother movements to help a little) on tjhe 1h TF

go on ....do it !
Neil
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fxcorrelator_-plusminus.jpg  
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Old Aug 28, 2009, 5:07pm   #43
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the Answers.....

NVP started this thread ok kiddy's heres the answers.....

Area A
USD & YEN are very high % and positively correlated as parrallel and moving in the same direction (YES YES YES).....fix you cry !
bonus points for spotting the NZ$ (light blue) moving upward roughly upwards in parrallel as well with these (but positioned higher up the chart)

Teacher Teacher - does the distance physically between them have an impact on the results ? Glad you asked that lad...answer is it depends on the MA's being used (??!!)
I will come to this in a future post...until then lets say that generally as long as they are moving parrallel in longer MA's (the 200 we are using) then yes they are roughy moving together

Area B
high % and positively correlated - USD (GREEN),AUS$(Gold),NZ$ (L.Blue)
(Euro and CHF are also correlated together but not to above)
Note that GBP (Red) is highly negatively correlated to teams above
CAD (Brown) is doing its own thing !

Area C
high % & +corry (all below based on the teams)-
Team 1 = CAD & AUS$
Team 2 = Yen/ USD and swissie (??)
Team 3 = EURO(Blue) and NZ$

so 3 teams but in terms of Directions Team 2 is negatively correlated
to teams 1 and 3.....(see! - the tag team Yen/USD always opposite to most others)

Area D (can I go home yet ?)

Awe cmon ........3 lines below the zero are similar (not including GBP)
the Currencies above the Zero (above horrizontal X axis) are all running similar
and the GBP is doing the opposite to them all !

Area E
most all flowing together.....and the GBP is a nice high % opposite to all of them !

ps - you find this when a currency gets a major news/events "hit" that affects its relative pricing to the others (up or down).......because the other currencies are performing/cycling normally with no major news impacts they seem to tighten up- leaving the news/event impacted currency spinning off in its own orbit....

this is actually a real pain as it will take quite a while for normailty to return to the Chart so you can start observing normal cycling again (hence the famous maxim - dont trade during news events or following them until the market settles again - or leastways any trading regarding the news effect Currency )

Test over !
Neil

Last edited by NVP; Aug 28, 2009 at 5:10pm. Reason: added a comment to last paragraph
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Old Aug 28, 2009, 5:39pm   #44
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NVP started this thread ok thats it....i'm late for meeting my wife,so the long weekend off to great start.......may need some good bachelor website addresses then on return next tuesday !

all have good ones
Neil
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Old Aug 29, 2009, 2:11am   #45
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Quote:
Originally Posted by NVP View Post
ok thats it....i'm late for meeting my wife,so the long weekend off to great start.......may need some good bachelor website addresses then on return next tuesday !

all have good ones
Neil
I have come across a course by a guy called Syd Wynemann (I think his site is called forextrainingworks - or something like that). He is a very difficult chap to work with and his correlation is based around the gbp/usd, eur/usd and usd/xxx working in tandem at certain times of the day.

He does have a following, but I couldn't put up with his talks when he kept on dumbing down everyone and taking 2 hours to put across the same message !! (sorry to be so nasty!)

Anyway, the summary was that there were some people that made it work - but not really for large numbers. I have some ahem "snippets" of the course available with the key pages for anyone if they want to see them.

I definately didn't make money with it though, have made consistent money with signals/mentoring I have mentioned in earlier posts.

Good luck guys
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