Best Thread Correlation Trading - Basic Ideas and Strategies

[NVP]

High historical levels of correlation between S&P500 and EURUSD
beathespread: Actual correlation between S&P 500 and Eur/Usd

hey john

in my opinion pair charts are diluted images of the true market picture

you really need to split out the 2 currencies concerned in the pair to get the real picture and observe individual currencies

sure EURO moves with Equities at times - but the real (inverse) correlation is US equities verses the individual yen*** and usd currencies and also the CHF*** at times

for me - pairs dont correlate - but currencies do :smart:

N

***thats when 2 of those countries Banks are not meddling in their currencies !

 

[John Last]

Thanks,

Correlation is not easy. I did an experiment. I plotted the evolution of the correlation between EUR/USD and GBP/USD. Then I made an anlysis to see how it evolves if it is chaotic or deterministic.

The results were that there were times when the correlation was deterministic. But other times the evolution of the correlation is much more chaotic that the pairs taken individually.

That is why it is not easy. Sometimes the correlations is giving very predictive results and sometimes you would better concentrate on the pair.

Here I share an experiment, may be it will be of some use.
http://beathespread.com/file/view/2729/peorsons-correlation-indicator-on-ssa-end-pointed

Art and Science.

 

[NVP]

Thanks,

Correlation is not easy. I did an experiment. I plotted the evolution of the correlation between EUR/USD and GBP/USD. Then I made an anlysis to see how it evolves if it is chaotic or deterministic.

The results were that there were times when the correlation was deterministic. But other times the evolution of the correlation is much more chaotic that the pairs taken individually.

That is why it is not easy. Sometimes the correlations is giving very predictive results and sometimes you would better concentrate on the pair.

Here I share an experiment, may be it will be of some use.
beathespread: Peorson's Correlation Indicator on SSA end - pointed

Art and Science.

hey John

totally appreciate your position here........

but you are looking at currency pairs and correlating them, i dont do that .....I only use pairs to trade with ...otherwise they are redundant to me in correlation terms

I correlate individual Currencies against each other and against markets....and the Yen and USd have consistently high negative correlations to the global equiites

regards
N

 

[John Last]

hey John

totally appreciate your position here........

but you are looking at currency pairs and correlating them, i dont do that .....I only use pairs to trade with ...otherwise they are redundant to me in correlation terms

I correlate individual Currencies against each other and against markets....and the Yen and USd have consistently high negative correlations to the global equiites

regards
N

I get the point. Thank you.
And it is completely sound as logic about the negative correlation.

Something like pearls in the sand.
And yes lately I was interested in some new instruments. Like order flow analysis in S&P 500. If the momentum is before the price the order flow is before the momentum.

Algo Futures

Maybe that can be combined with the correlation.

 

[NVP]

hey all

heres what i mean re currency correlation verses the Equity market

last 2 days trading

Dow falls........ yen and usd rise.........candy from a baby***

I dont spend much time here anymore so pm me if you want to know what ,me and the corrie crew are up to these days....

cheers
N

*** even with the BOJ's huge intervention !!!

 

[NVP]

I get the point. Thank you.
And it is completely sound as logic about the negative correlation.

Something like pearls in the sand.
And yes lately I was interested in some new instruments. Like order flow analysis in S&P 500. If the momentum is before the price the order flow is before the momentum.

Algo Futures

Maybe that can be combined with the correlation.

yep - I call it chicken and egg........

in the end its all about factoring what you need into the correlation trading equation and filtering the rest out ..........experiment experiment experiment

then translate the core principles into instinct with practice and experience........ as I try to teach my VIP Corrie Crew

good luck in your future Trading

N

 

[John Last]

Thanks. If someone founds some ideas with correlation filtered by the SSA ep he can pm me.

 

[slowpork]

um N, i got this

T2W Message
NVP has chosen not to receive private messages or may not be allowed to receive private messages. Therefore you may not send your message to him/her.

If you are trying to send this message to multiple recipients, remove NVP from the recipient list and send the message again.

 

[alright]

Hi Neil. Today after observing for a while I decided to video record the charts and I managed to catch what you see in the pic on a 5 min chart. The chf line repainted after 4 bars, so what looks like a break of the 0 line, after 20 minutes didn't look as such anymore, at least not on the bar where it first appeared. Now I was wondering if this was debated already in this huge thread and if you could point me to the right posts or say what your opinion is about it. Thanks

 

[NVP]

um N, i got this

T2W Message
NVP has chosen not to receive private messages or may not be allowed to receive private messages. Therefore you may not send your message to him/her.

If you are trying to send this message to multiple recipients, remove NVP from the recipient list and send the message again.

looks like T2W have disabled my private messaging as well ...........my settings look ok
and since my signature has not returned either looks like perpetual incarceration is now in place

such is life..........

N

 

[NVP]

Hi Neil. Today after observing for a while I decided to video record the charts and I managed to catch what you see in the pic on a 5 min chart. The chf line repainted after 4 bars, so what looks like a break of the 0 line, after 20 minutes didn't look as such anymore, at least not on the bar where it first appeared. Now I was wondering if this was debated already in this huge thread and if you could point me to the right posts or say what your opinion is about it. Thanks

hey alright

hmmm..........stange !

and I see most other currencies look consistent

perhaps the broker requoted some CHF prices ?

no idea....no idea

N

 

[NVP]

Thanks. If someone founds some ideas with correlation filtered by the SSA ep he can pm me.

no problemo - thanks John !

N

 

[NVP]

Hi,

interesting point, so you say currency market goes up and equity goes down? I am thinking along the lines these two should be positive correlated and follow one another in the same direction....

hey G

firstly I look at Individual currencies not pair charts

Paircharts are 2 currencies blended...that means I have no clarity in identifying the behaviour of each currency.....paircharts are useless to me apart from having to use them to trade :smart:

the Yen , USD and also the CHF traditionally move in a negative correlation to equities but you cannot see that on paircharts as they are not pure (as mentioned above)

when people say the EURUSD is positively correlated to equities they are missing the point as it is not a pure picture of either the EURO or the USD

N

 

[NVP]

100,000 % yes

the stuff I preach here is nearly 2 years behind my own personal development of the systems and strategies

N

 

[NVP]

not bad at all...I assume this is also your trading style...btw forex and raw materials ( gold, silver, crude oil) is also an interesting combination to hedge risk.

all interesting ideas..... but this correlation rarely lets me down

N

 

[John Last]

I have some tests results for FX Correlator EA.

This morning I did some experiments with the FXCORRELATOR with JMA smoothing. I made a custom mod the idea is:

BUY EUR/USD when globally the Euro is stronger than USD

SELL EUR/USD when globally the USD is stronger than the Euro

I use a custom mod with digital smoothing.

It gets consistently killed in ranging market conditions. The JJMA smoothing does not help much. The other observation is that it takes time to calculate everything, so it is slow.

In this example I use a bigger period for averaging of 50 otherwize you get killed in sideways action.

The idea for the moment is that it would work on somewhat higher time frames as some real relationships can materialize at those levels.

beathespread: FX Correlator EA

beathespread: Here are some "successful" tests on 4 h time frame

Of course you need the JJMA libraries in order to install it, so look arround in the group you will find everything.

That is from me.

 

[NVP]

the Euro saga continues ...........and the markets suffer...easy money

N

 

[NVP]

I have some tests results for FX Correlator EA.

This morning I did some experiments with the FXCORRELATOR with JMA smoothing. I made a custom mod the idea is:

BUY EUR/USD when globally the Euro is stronger than USD

SELL EUR/USD when globally the USD is stronger than the Euro

I use a custom mod with digital smoothing.

It gets consistently killed in ranging market conditions. The JJMA smoothing does not help much. The other observation is that it takes time to calculate everything, so it is slow.

In this example I use a bigger period for averaging of 50 otherwize you get killed in sideways action.

The idea for the moment is that it would work on somewhat higher time frames as some real relationships can materialize at those levels.

beathespread: FX Correlator EA

beathespread: Here are some "successful" tests on 4 h time frame

Of course you need the JJMA libraries in order to install it, so look arround in the group you will find everything.

That is from me.

hmm

interesting...luckily thats why we are traders and make the decisions based on experience and not pure mechanical signals

1 up for traders verses machines

N

 

[John Last]

I also think that the human decision is important, but I would like to have relevant information.

For example if I know that this particular settings were loosing consistently and that setting were consistently profitable I may take a different discretionary decision.

For me the best use of the experts is to gather relevant information and data discovery. What I am going to do with that information is up to me and my experience that will combine it with all the factors I take into account.

 

[John Last]

Money management is important indeed.

Your strategy is trying to build up the equity, your money management is protecting your account.

To have a looser is one hing to loose your account is completely different thing, emotionally and financially.

The key of money management is to make you loose slowly and give you the time to react.