Best Thread Correlation Trading - Basic Ideas and Strategies

[NVP]

Mornin all......

Dows easing this week........

on that right chart 15m Tf .....lets see what happens when Dow futures hits the S/R lines........we can then react based on its behaviour :-

Falling Dow
Bounces North - buy E/J
Extends into decline - Sell E/J

Rising Dow
Bounces south- Sell E/J
Extends into rise - Buy E/J

lets see...
N

 

[NVP]

so here we are .........a few hours on

when did you enter ?

(i'm GMT -1 on charts)

1) At the dotted line whene Dow breached ?
2) On confirmation of when the dow extended beyond the breach bar
3) When the Yen and euro were both in opposing sides of the Zero and diverging ?
4) when the sun eclipsed the 3rd planet of jupiter ?

whatever...theres nearly 70 pips on the board since 1) .and I hope I have made the point about watching those breach levels on the Dow .....

later :smart:
N

 

[NVP]

mornin all

heres the week ...yen had a rollercoaster eh ?

anyway the day will be interesting...on the right chart I see that Dow has shed some 300+ points since Tuesday and is trying to give them back so perhaps Dow shorts will be feeling the pinch and could fold....

a little more pressure and that bounce could do very well today

that should get Yen dumping (which it is doing happily already....even off even a falling Dow)

so Selling Yen pairs off a retracing Dow will be my main main strategy today .......

BUT

I will need to see the Yen Breach that support line on the 500 far right Chart first

i'll bring that chart up later to show you that on the 500/1 setting currencies behave just the same as any intrument regarding S/R lines ......

you have to get all intruments under pressure conditions to see more predictable behaviour...................think of it like a giant supermarket........if I ask you to predict where a shopper is going to walk in the next 5 minutes do you know ?

but ring the fire alarm and i'm betting 99.9% they are goin to be heading for the exit ......and I like those odds better


later
N:smart:

 

[Purple Brain]

Thanks for your posts NVP, they are really interesting. I've also been playing with the correlator you have provided and find it extremely useful. The correlation between currencies and indexes seems to change over time as you've mentioned and specifically things such as the changing nature of the usd/jpy correlation as the carry trade of choice (as you say, no longer the case) mist require frequent review. I guess you are constantly looking for the changes between the relationships of the various market instruments to decide how to modify the correlater to keep it in tune with current market conditions, effectively correlating the correlations? Is this a manual exercise done at a specific frequency or is it just insights picked up as they develop?

 

[MizzyT]

Hi NVP,

I like your simple strategy and working great. thanks for sharing!
In addition to your indi, I also using Dow trend and volatility indi and help me a lot.

When Dow trend keeps up or down, I look for the pullback moment. When USD and JPY both are below or above zero again in Dow trending, I wait for Dow volatility occur in my way and entry. very good entry so far.

I am still learning exit timing. any advice appreciate.

Thanks,

Mizzy

 

[Jedster2001]

I guess you are constantly looking for the changes between the relationships of the various market instruments to decide how to modify the correlater to keep it in tune with current market conditions, effectively correlating the correlations? Is this a manual exercise done at a specific frequency or is it just insights picked up as they develop?

The strengthmeter is showing the strength and weakness of individual currencies, as opposed to currency pairs. Correlations can thus be seen between particular currencies. For example, you will often see the Euro and Sterling move in the same direction as there are economic factors that affect them both in a similar way. The same can be said for other pairs such as AUD/NZD, USD/CAD, obviously geographical location playing a factor, but currencies such as AUD/CAD are often highly correlated, and other currencies as well. Equally, but importantly, there are factors that just affect each individual currency and so there are times when these currency correlations will break down. Sometimes just for a short period, and sometimes for longer periods.

However, the strength meter will simply continue to show you the relative strengths of the currencies. It doesn't do any adjustment or balancing (either manually or automatically), the correlations just exist, so there is nothing to tweak that would "keep it in tune with the market conditions".

However, what you can do, is look out for these correlations and see when they breakdown, or get stronger. They can then provide a helpful insight as to when to trade particular currencies or commodities.

J

 

[NVP]

right stand by your beds......

here we are and the Yen is in the zone on that right chart

so whats it gonna be ........is the yen gonna dump....or is it gonna bounce this afternoon ?

watch the Dow for clues.....its still retracing so I am anticipating a yen contiuation continuation perhaps ?.......or is the Yens move a bridge to far and time for a breather ?

hmmmm
N

 

[NVP]

Thanks for your posts NVP, they are really interesting. I've also been playing with the correlator you have provided and find it extremely useful. The correlation between currencies and indexes seems to change over time as you've mentioned and specifically things such as the changing nature of the usd/jpy correlation as the carry trade of choice (as you say, no longer the case) mist require frequent review. I guess you are constantly looking for the changes between the relationships of the various market instruments to decide how to modify the correlater to keep it in tune with current market conditions, effectively correlating the correlations? Is this a manual exercise done at a specific frequency or is it just insights picked up as they develop?

Hey there PB

if I could truly predict the correlation pattern changes to a really high level of accuracy I would have been rackin it in excessively years ago

I do have some idea whats happening and yes a few bespoke indicators watching for changes in those correlation patterns.....that help me a little in this game

the 7 p's slide is all I can recommend as a starter and then start to ask simple Questions and test ideas along those lines based on what areas interest you most....

al i can say again is that keep it simple ........more than 2-3 rules and you will be pushing the value/benefit of that particular system

N:smart:

 

[NVP]

Hi NVP,

I like your simple strategy and working great. thanks for sharing!
In addition to your indi, I also using Dow trend and volatility indi and help me a lot.

When Dow trend keeps up or down, I look for the pullback moment. When USD and JPY both are below or above zero again in Dow trending, I wait for Dow volatility occur in my way and entry. very good entry so far.

I am still learning exit timing. any advice appreciate.

Thanks,

Mizzy

excellent post M

you are using a style I have alluded to here many times and do so myself if the situation presents itself

Excellent
N

 

[NVP]

The strengthmeter is showing the strength and weakness of individual currencies, as opposed to currency pairs. Correlations can thus be seen between particular currencies. For example, you will often see the Euro and Sterling move in the same direction as there are economic factors that affect them both in a similar way. The same can be said for other pairs such as AUD/NZD, USD/CAD, obviously geographical location playing a factor, but currencies such as AUD/CAD are often highly correlated, and other currencies as well. Equally, but importantly, there are factors that just affect each individual currency and so there are times when these currency correlations will break down. Sometimes just for a short period, and sometimes for longer periods.

However, the strength meter will simply continue to show you the relative strengths of the currencies. It doesn't do any adjustment or balancing (either manually or automatically), the correlations just exist, so there is nothing to tweak that would "keep it in tune with the market conditions".

However, what you can do, is look out for these correlations and see when they breakdown, or get stronger. They can then provide a helpful insight as to when to trade particular currencies or commodities.

J

Thanks J ........

a few Currency Correlations do exist and seem to be prevelant.......but dont bet the farm on them

And as a little hint........we are always looking hard to see what isnt happening as much as what is.........

N

 

[NVP]

One of the things I struggled with the last time I ran a course was that people wanted the holy grail using my systems....rules and regs

but I kept saying I was there to show them the possibilities of Strengthmeter & correlation dynamics and to help them build systems around their own perceptions and ideas

perhaps one day I will try again ........but people must come wanting to learn to fish and not expect the salmon coldwrapped and sitting on the table when they enter the room !

it doesnt work that way dudes ...you have to believe in the rules you create....so when you lose trades (and you will) you will not lose the belief in the rules and will persevere to long term profits !

look at Mizzy's last post ........I have never ever blatantly set those EXACT rules for eveyone to follow but this trader is experimenting with ideas and developing a winning Edge ..........

later
N

 

[NVP]

Euros doing well this afternoon.......hmmmm

 

[NVP]

that previous euro comment was out of frustration and not pleasure ......

why ?

Remember I said watch the Yen bounce ?

well around 12 today and 11am on my charts attached (i'm running at GMT-1)....I saw the Dow start to fade and my Yen HAD to bounce.....and at the support level as well

luck ?......fate?.....skill?.....

anyway it obliged for a few nice hours.......

then look at the Euro..that SOB held north .......my favourite yen pair did not play the game ..............and GBP was the main sell......and i am not a fan of the G/J ...as boyoboy that pair can shred you in minutes......

such is life .........I got 1 currency correct as a call and I should have gone to the GBP but prejudice (and experience) made me Choke.....not that the E/U was a loser if you put a healthy S/L in but it was'nt the play at all .....

later all - have a nice evening
N

 

[Purple Brain]

The strengthmeter is showing the strength and weakness of individual currencies, as opposed to currency pairs. Correlations can thus be seen between particular currencies. For example, you will often see the Euro and Sterling move in the same direction as there are economic factors that affect them both in a similar way. The same can be said for other pairs such as AUD/NZD, USD/CAD, obviously geographical location playing a factor, but currencies such as AUD/CAD are often highly correlated, and other currencies as well. Equally, but importantly, there are factors that just affect each individual currency and so there are times when these currency correlations will break down. Sometimes just for a short period, and sometimes for longer periods.

However, the strength meter will simply continue to show you the relative strengths of the currencies. It doesn't do any adjustment or balancing (either manually or automatically), the correlations just exist, so there is nothing to tweak that would "keep it in tune with the market conditions".

However, what you can do, is look out for these correlations and see when they breakdown, or get stronger. They can then provide a helpful insight as to when to trade particular currencies or commodities.

J

Apologies NVP. I understand the individual currencies in the correlator will always plot ‘as is’. I meant with specific regard to for instance the usd & jpy needing to be both above/below the zero line and the DJ needing to be above/below to 20 period moving average. The instruments other than currencies for which the correlation with the currencies changes over time.

 

[NVP]

hey PB

heres the Yen USD and also the Dow this week on a standard 20ma default setting

using these very basic patterns of the 7 p's regarding correlation and strengthmeter dynamics i am very interested if :-

1) the Yen and USD are on the same side of the Zero (trade others into them )
2) the dow is opposing side of 20 MA to Yen and USD

I will trade this even if the Dow is not the opposite side... but its direction is starting to at least move towards that pattern (ie slowing momentum on the same side of MA).....using this will get you in faster on trades if you really want to use the Dow rule at all.........

I call just using 1) trading Naked as I am not using Intermarket correlation at all

take a look through the week and ask me any questions regarding what you you would/clould have done ..theres a lot of 100% correlation here regarding 1 and 2 together ........and there was a few pips around

early week the commdolls gave us the sell pips...then mainly it was the Euro I would have turned to to trade the guys when the signals came

N:smart:

 

[NVP]

Hey Peleus...and eveyone here fairty new to the game

I totally understand your view.......I've Identified and watch for literally hundreds and hundreds of patterns since I first started.... and this is just one of them

My perspective on Dow's correlation to the forex market is purely subjective and clearly is never 100% accurate.....

I would recommend if you are not seeing the benefits of the Pure correlation pattern (ie only trading when Dow is Above the 20ma and USD and YEN below the Zero on a 20MA).....THEN IGNORE THE DOW COMPLETELY....and just trade the USD/YEN pattern

it will get you into more trades......and one less thing to thjkk about in the early days of learning the ropes

N :smart:

 

[NVP]

mornin all

Dow rose overnight........and nice buys on the Aussies

the right hand 15m TF shows us a nice set of support and resistance lines on the Dow to trade off of soon...so watch the Dow and trade accordingly

But let it get to the bounce and then confirm a a signal before you enter

N

 

[NVP]

hey all

as usual I am at work and cant get access to my screens

whats cooking ?
N

 

[be-positive]

hey all

as usual I am at work and cant get access to my screens

whats cooking ?
N

well by the number of posts you have had today on t2w you cannot be doing much work

 

[Jedster2001]

hey all

as usual I am at work and cant get access to my screens

whats cooking ?
N

Not a lot going on. European equity markets are generally up. Currencies are fluctuating with no real strength or weakness in any one currency. Euro is down a little...

Also, no news to move the market, so a day to do other things...

Unless the US session brings some vol...