Best Thread Correlation Trading - Basic Ideas and Strategies
NVP
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Hey Hamish
boy o boy is that a good question.........opening a veritable treasure chest of information and research
when US Equities are running the same direction as its currency that indicates a particular Economic signal /theme .....but in truth one must also investigate the other Market factors to see the "true picture"......(like commodity prices and Bond Prices as well)
This is only really relevent in longer Term timeframes as shorter term we expect more anolomalies and noise to happen
John murphy has written some great stuff on Correlation and intermarket analysis.........ansd I recommend people read him if you are interested in this type of trading analysis (as i am naturally)
heres a taster..........and also another chart showing how back pre 2000's the USD actually was rising alongside the Equity market .........why ?
read Murphys book ! :smart:
N
http://stockcharts.com/school/doku.php?id=chart_school:overview:intermarket_analysis
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NVP
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So why do I preach trading when the Dow is opposing the direction of USD (and Yen) ?
Well we all need rules to play to and those have worked for me over the last years ..........
In truth I place a LOT more emphasis on the dynamics of my currency Strengthmeter signals than the Dows position - which I hope you will glean from the many many times i am calling trades without the Dow being "perfect" ........
you could Trade Naked and Ignore the Dows relationship to the G8 currencies.........but in truth i like that inverse relationship on my side most of the time ...........
N
Well we all need rules to play to and those have worked for me over the last years ..........
In truth I place a LOT more emphasis on the dynamics of my currency Strengthmeter signals than the Dows position - which I hope you will glean from the many many times i am calling trades without the Dow being "perfect" ........
you could Trade Naked and Ignore the Dows relationship to the G8 currencies.........but in truth i like that inverse relationship on my side most of the time ...........
N
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NVP
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PROBABILITY
http://www.trade2win.com/articles/1318-how-win-futures-trading-game
hmmmm........Thats not a bad piece above ......
Trading is all about probability............you set rules that put the coin toss slightly in your favour .................but that can still take a long time to show up as its all about the Sample size .......
The bigger the Sample size the greater chance your edge will appear
My "edge" is watching for certain patterns/positions on the G8 Currencies on a strengthmeter with some US Equity correlation
So find your Edge (backtesting / experimenting) and then settle in with patience until you have a decent Sample to show if it really works or not .........
dont overfit or make it tooo complicated ......and heres a big big clue.......dont get to hung up on having to deliver that 70%+ "WIN" solutions as in my humble opinion those figures will not last the course as you have truly overfitted your backtesting and will be ultimately disapointed....
most top traders make money off of fairly unimpressive % win ratios.......but they know how to MINIMISE the VALUE of their losing trades and MAXIMISE the VALUE of their winners using excellent and disciplined MM techniques......and that my friends is the holy Grail !
N
http://www.trade2win.com/articles/1318-how-win-futures-trading-game
hmmmm........Thats not a bad piece above ......
Trading is all about probability............you set rules that put the coin toss slightly in your favour .................but that can still take a long time to show up as its all about the Sample size .......
The bigger the Sample size the greater chance your edge will appear
My "edge" is watching for certain patterns/positions on the G8 Currencies on a strengthmeter with some US Equity correlation
So find your Edge (backtesting / experimenting) and then settle in with patience until you have a decent Sample to show if it really works or not .........
dont overfit or make it tooo complicated ......and heres a big big clue.......dont get to hung up on having to deliver that 70%+ "WIN" solutions as in my humble opinion those figures will not last the course as you have truly overfitted your backtesting and will be ultimately disapointed....
most top traders make money off of fairly unimpressive % win ratios.......but they know how to MINIMISE the VALUE of their losing trades and MAXIMISE the VALUE of their winners using excellent and disciplined MM techniques......and that my friends is the holy Grail !
N
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Many thanks, NVP, for your prompt and very useful reply. I have the relevant book in pdf. Now's the time to read it!
If we agree that the 'policies' of the criminal banksters/politicians/bureaurats will inevitably saddle us with hyper-inflation, and, as John Murphy writes:
A POSITIVE relationship between bonds and stocks
An INVERSE relationship between interest rates and stocks
Bonds usually change direction ahead of stocks
An INVERSE relationship between commodities and bonds
A POSITIVE relationship between commodities and interest rates
A POSITIVE relationship between stocks and commodities
Commodities usually change direction after stocks
An INVERSE relationship between the US Dollar and commodities
then we must conclude that we FXCorrelators are protected by daily price action analysis. There's no alternative.
"Always Expect the Unexpected and You Will Not be Disappointed" should be our motto.
Many thanks, again, to NVP for showing us the way.
Bugger The Bankers THE OFFICIAL VIDEO - YouTube will inspire all us!
Trade Canny,
Hamish.
If we agree that the 'policies' of the criminal banksters/politicians/bureaurats will inevitably saddle us with hyper-inflation, and, as John Murphy writes:
A POSITIVE relationship between bonds and stocks
An INVERSE relationship between interest rates and stocks
Bonds usually change direction ahead of stocks
An INVERSE relationship between commodities and bonds
A POSITIVE relationship between commodities and interest rates
A POSITIVE relationship between stocks and commodities
Commodities usually change direction after stocks
An INVERSE relationship between the US Dollar and commodities
then we must conclude that we FXCorrelators are protected by daily price action analysis. There's no alternative.
"Always Expect the Unexpected and You Will Not be Disappointed" should be our motto.
Many thanks, again, to NVP for showing us the way.
Bugger The Bankers THE OFFICIAL VIDEO - YouTube will inspire all us!
Trade Canny,
Hamish.
NVP
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Great stuff ...............!
I served my apprenticeship over many many years and learnt all the things one should about Economic Theory, Fundamental analysis , market forces etc etc etc...........
Basically all the Logical things we as intelligent human beings would expect to see in Structured and efficient Global markets.....
but its not true..........
These days I keep it simple and try to withdraw from forecasting Rhetoric re Global Events and their impact on global Markets as its a waste of time and energy........
TRADE WHAT YOU SEE
N
I served my apprenticeship over many many years and learnt all the things one should about Economic Theory, Fundamental analysis , market forces etc etc etc...........
Basically all the Logical things we as intelligent human beings would expect to see in Structured and efficient Global markets.....
but its not true..........
These days I keep it simple and try to withdraw from forecasting Rhetoric re Global Events and their impact on global Markets as its a waste of time and energy........
TRADE WHAT YOU SEE
N
NVP
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mornin all
well well well......a late xmas miracle
The Yen it Cometh .....and Lo the traders said it was good .....and the FXCorrelator from on high showeth this movement with the multiple crossing of the 15m TF in last 24 hours to the North side of the zero
all praise to the Yen and let us worship him in his ascent
but for how long ?.....although this is off of MINIMUM dow retracement south so far on the left hand chart (4hr TF)
N
well well well......a late xmas miracle
The Yen it Cometh .....and Lo the traders said it was good .....and the FXCorrelator from on high showeth this movement with the multiple crossing of the 15m TF in last 24 hours to the North side of the zero
all praise to the Yen and let us worship him in his ascent
but for how long ?.....although this is off of MINIMUM dow retracement south so far on the left hand chart (4hr TF)
N
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NVP
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hey all
well.........the Dow is still Struggling today and fading .........
Yen popped up again recently so I am mainly following the Yen buy trail today (Selling Europeans in last hour or so)
Equally you can see a recent Rally from the dow on the 15m TF where sells on USD and Yen were available ...............(and a nice monster buy on the Euro)
a lot of traders conform to the system of trading just 1 TF and never worrying about higher or Lower TF signals for confirming or conflicting signals..........they just go with the signals regardless buying up and down as seen
its really up to you how you shape your style and system......so walk your own path
N
well.........the Dow is still Struggling today and fading .........
Yen popped up again recently so I am mainly following the Yen buy trail today (Selling Europeans in last hour or so)
Equally you can see a recent Rally from the dow on the 15m TF where sells on USD and Yen were available ...............(and a nice monster buy on the Euro)
a lot of traders conform to the system of trading just 1 TF and never worrying about higher or Lower TF signals for confirming or conflicting signals..........they just go with the signals regardless buying up and down as seen
its really up to you how you shape your style and system......so walk your own path
N
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NVP
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its been a euro Yen rollercoaster today !
NOTE THE FIRST Attachment (right chart) is the EU pair .....but the E/J is even Better in PIPS - see second picture !
look at the 4 Hoops........perfect negative correlation as Euro opposes the Yen and provides some great fast trades (although USD was lagging at times)
the second (Green) Hoop was not supported by the Dow being above the 20ma but as you can see the Dow was aggressively rising .......still 3 other signals though with dow supporting the trade !
Ideally I like my Dow , USD and Yen in perfect positions to trade (see details in signature area).........thats the (1st)Yellow and (3rd) Red Hoops where we really had the full perfect signals .....
but as I always discuss here ...I will sometimes accept imperfection - so that includes the Dow NOT being in perfect position (but USD and Yen aligned) sooo thats the (2nd) Green hoop scenario
and also Yes ......I could accept the USD and Yen not aligned if I like the Dows action ......as in the (4rh) Grey hoop
i'm a Programmers nightmare ..........!
N
NOTE THE FIRST Attachment (right chart) is the EU pair .....but the E/J is even Better in PIPS - see second picture !
look at the 4 Hoops........perfect negative correlation as Euro opposes the Yen and provides some great fast trades (although USD was lagging at times)
the second (Green) Hoop was not supported by the Dow being above the 20ma but as you can see the Dow was aggressively rising .......still 3 other signals though with dow supporting the trade !
Ideally I like my Dow , USD and Yen in perfect positions to trade (see details in signature area).........thats the (1st)Yellow and (3rd) Red Hoops where we really had the full perfect signals .....
but as I always discuss here ...I will sometimes accept imperfection - so that includes the Dow NOT being in perfect position (but USD and Yen aligned) sooo thats the (2nd) Green hoop scenario
and also Yes ......I could accept the USD and Yen not aligned if I like the Dows action ......as in the (4rh) Grey hoop
i'm a Programmers nightmare ..........!
N
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NVP
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Mornin all.....
well the Yen continues to provide excellent volatility in both directions......overnight the main thrust on the 15m was Yen north supported by a falling Dow (right chart)....and boyoboy was AUD the currency to sell !
on that 4hr Chart (left side) the Yen is trying to consolidate its position above the Zero but I feel it will need more bearish action on the Dow to help it ......(or at least the Nikkei)
Trade what you see.....I really like the dynamics on E/J at the moment and as already mentioned the big volatility on the Yen is proving very profitable for Traders
N
well the Yen continues to provide excellent volatility in both directions......overnight the main thrust on the 15m was Yen north supported by a falling Dow (right chart)....and boyoboy was AUD the currency to sell !
on that 4hr Chart (left side) the Yen is trying to consolidate its position above the Zero but I feel it will need more bearish action on the Dow to help it ......(or at least the Nikkei)
Trade what you see.....I really like the dynamics on E/J at the moment and as already mentioned the big volatility on the Yen is proving very profitable for Traders
N
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NVP
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wondered why the Jpanese Yen is rising whilst Dow seems flat ?
the Clue my friends is in the Nikkei...the correlation to US Equities has fallen apart as the Nikkei plunges........and any follower of the nikkei/Yen relationship knows that those dudes also work generally in negative correlation !
NN
the Clue my friends is in the Nikkei...the correlation to US Equities has fallen apart as the Nikkei plunges........and any follower of the nikkei/Yen relationship knows that those dudes also work generally in negative correlation !
NN
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NVP
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Intermarket analysis is a fascinating but frustrating area of research
hindsight shows us the inter-relationships/opportunities we missed to trade, but in many cases rarely unfolds the secrets of the future due to its (over)complex and misunderstood rules.....
so I dont tend to bring much of this to the table here at T2W.......merely focusing on some small elements of the jigsaw which in themselves are enough to usually have us scratching our heads !
Rule 1 in Trading - keep it simple....you are merely seeking to make a moderate consistent profit in the Markets - not trying to solve all the secrets of the universe !
I used to get involved in re-engineering Multinational Companies and the secret to that was always breaking things down into more managable bite size chunks.....so thats what we do here with focusing on JUST the Yen/Dow and the USD's relationships
later
N
hindsight shows us the inter-relationships/opportunities we missed to trade, but in many cases rarely unfolds the secrets of the future due to its (over)complex and misunderstood rules.....
so I dont tend to bring much of this to the table here at T2W.......merely focusing on some small elements of the jigsaw which in themselves are enough to usually have us scratching our heads !
Rule 1 in Trading - keep it simple....you are merely seeking to make a moderate consistent profit in the Markets - not trying to solve all the secrets of the universe !
I used to get involved in re-engineering Multinational Companies and the secret to that was always breaking things down into more managable bite size chunks.....so thats what we do here with focusing on JUST the Yen/Dow and the USD's relationships
later
N
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