Best Thread Correlation Trading - Basic Ideas and Strategies

[NVP]

heres the day on the main (middle) 15m chart

a few wobblers - then a more decent signal still on ........but the Dow fell back so I would have been tightening all the way from its decline...

later all......
N

 

[NVP]

mornin all......

heres the week attached .........a couple of Pure signals and as usual a few wannabees.....shame that the biggish Dow fall didnt generate any Buys on Yen on wednesday .....such is life

Anyway today is NFP....trade or dont trade its up to you as individuals to decide

if you put me on the spot today I would say that the USD and YEN have been bearish for 3 out of 3 days since tuesday (look at the chart below) and some retracing could be in order ..especially if the Dow now catches a cold as well.........

trade well
N

 

[NVP]

here we are again

big divergences on Eur/GBP.......and the Dows continued agression means the yen and USD s/be still south........but boyoboy look at the chart below :-

they are not budging !

so I am hoping we finally get a signal to buy them soon.....lets get that Nasty Dow consolidated below the 13,890's now and perhaps we can tease some pips before the NFP's loom.....

GBP would be the sell assuming it keeps getting hit....

(conversely the Dow could now bounce on support line(?) and the dam bursts on again selling USD and Yen - trade what you see........trade what you see )

N:smart:

 

[Jedster2001]

Hi NVP,
Firstly, thanks for your massive contribution here. I've been lurking at T2W for ages, thought I'd better actually start posting.

I've watched some of your videos, and I've been playing with the strengthmeter on and off over the last couple of months.

One question (well, one of many) relates to your simple 80/20 system. You look for strength in the dow say, (or general US equities), and then if the signal is produced, short the USD or Yen against some currency that is strong. I was trying to work out why that works. Obviously it appears to work, but I can't explain it...

If US equities were strengthening say, then doesn't that mean that dollars are being pumped into the US economy, so shouldn't the dollar also strengthen? An yet, we don't see that. When the Dow strenghtens, the 80/20 system tells us to short the dollar against some other stronger currency.

Just trying to understand exactly the mechanics of what is going on...

Thanks

J

 

[NVP]

ok heres a snapshot just before the news......

it will take a bomb to get the yen and USD south...right ?

N

 

[NVP]

Hi NVP,
Firstly, thanks for your massive contribution here. I've been lurking at T2W for ages, thought I'd better actually start posting.

I've watched some of your videos, and I've been playing with the strengthmeter on and off over the last couple of months.

One question (well, one of many) relates to your simple 80/20 system. You look for strength in the dow say, (or general US equities), and then if the signal is produced, short the USD or Yen against some currency that is strong. I was trying to work out why that works. Obviously it appears to work, but I can't explain it...

If US equities were strengthening say, then doesn't that mean that dollars are being pumped into the US economy, so shouldn't the dollar also strengthen? An yet, we don't see that. When the Dow strenghtens, the 80/20 system tells us to short the dollar against some other stronger currency.

Just trying to understand exactly the mechanics of what is going on...

Thanks

J

Hi J - thats a 100,000% great question........and in truth if you look at recent history this epic correlation triumvirate i talk about (Yen,usd,Dow) has come a little more unstuck and unpredictable ....but such is life

The correlation I use for USD/YEN/DOW is pretty old hat .its called the carry trade so look into that and perhaps that will explain the theory better than I

meanwhile....

in theory if someone loves a countries stock market they will also love the Home currency that will grow in strength as a result of the benefits that the booming economy is bringing.....

umm plus normally an increasing interest rate to try to control the possible inflation/growth being seen ...which also attracts Traders to the currency !

win win right.......?

wrong.........we do not live in an insular world anymore ....if someone sneezes in Tokyo the nose gets wiped in New York........ and since countries came gradually off of the gold standard (used to fix currencies to a decent and realistic "peg") the correlation karma has been going bad as countries can play games with their currencies - why do that ?

because your economy cannot continue to exponetially grow AND do the same for the Currency strength......because Exports are priced in cross currencies and you price your country out of the overseas markets eventually....

its called currency wars and it is getting worse......throw in a few Trillion dollars here and there and get about 5 of the G8 currencies playing "print the banknote" and we have the crazy market we see today !

so we are seeing a lot of cross and conflicting signals these days in the Forex markets .......and I apologies in advance if that pattern I teach here falls apart tomorrow and we are back to the drawing board

Truth gang ?

Thats just one simple patterm/Formation I use here to demonstrate the power of using strengthmeters (how else can you tell if USD and Yen are on the same side of a Zero ?)........ I encourage everyone to go to the drawing board abd play play play and show me what else works......because there are Zillions of currency patterns and intermarkets out there to play with

N

 

[NVP]

people talk a lot of Cr*p about forex correlation...........I try to keep it relatively simple and also keep an open mind regarding "established" principles (yes including my own !)

so beware.... what works today may not work tomorrow .....or the next day....but perhaps it works again the day after that.......

but you all knew that otherwise all traders woukld be millionaires - right ?

N

 

[Itshamish]

Hi NVP,
Firstly, thanks for your massive contribution here. I've been lurking at T2W for ages, thought I'd better actually start posting.

I've watched some of your videos, and I've been playing with the strengthmeter on and off over the last couple of months.

One question (well, one of many) relates to your simple 80/20 system. You look for strength in the dow say, (or general US equities), and then if the signal is produced, short the USD or Yen against some currency that is strong. I was trying to work out why that works. Obviously it appears to work, but I can't explain it...

If US equities were strengthening say, then doesn't that mean that dollars are being pumped into the US economy, so shouldn't the dollar also strengthen? An yet, we don't see that. When the Dow strenghtens, the 80/20 system tells us to short the dollar against some other stronger currency.

Just trying to understand exactly the mechanics of what is going on...

Thanks

J

Here's your answer!
Let me google that for you

NPV is very busy and so are the rest of us

 

[NVP]

good to see so many people around the thread....

you are all welcome.......keep an open mind in all your trading research and never take sweets from strangers.....

N

 

[NVP]

i'm head down here watching.......

watch the yen - its primed to go north

N

 

[NVP]

Dow just hit the weeks high as well........

now are we going to finally get a decent unwind ?

n

 

[NVP]

tell me you are all in E/J sell..please !!!

 

[NVP]

i'll take what I have .....nice scalp ....N

 

[NVP]

more coming dudes .....lock in and go

 

[NVP]

stepping out - money to make

later
N

 

[Jedster2001]

That's a really interesting and detailed response, thanks. You know, currency wars are great for a day trader because they intorduce exactly the type of volatility that we need for day trading to be effective. Look at the vol in the yen over recent weeks. It hasn't been like that for a long time!

Of course, as a result, longer term damage may well be done to the associated economies, but, if they are going to do it, and I can't stop it, so I will definitely try to profit from it

Hi J - thats a 100,000% great question........and in truth if you look at recent history this epic correlation triumvirate i talk about (Yen,usd,Dow) has come a little more unstuck and unpredictable ....but such is life

The correlation I use for USD/YEN/DOW is pretty old hat .its called the carry trade so look into that and perhaps that will explain the theory better than I

meanwhile....

in theory if someone loves a countries stock market they will also love the Home currency that will grow in strength as a result of the benefits that the booming economy is bringing.....

umm plus normally an increasing interest rate to try to control the possible inflation/growth being seen ...which also attracts Traders to the currency !

win win right.......?

wrong.........we do not live in an insular world anymore ....if someone sneezes in Tokyo the nose gets wiped in New York........ and since countries came gradually off of the gold standard (used to fix currencies to a decent and realistic "peg") the correlation karma has been going bad as countries can play games with their currencies - why do that ?

because your economy cannot continue to exponetially grow AND do the same for the Currency strength......because Exports are priced in cross currencies and you price your country out of the overseas markets eventually....

its called currency wars and it is getting worse......throw in a few Trillion dollars here and there and get about 5 of the G8 currencies playing "print the banknote" and we have the crazy market we see today !

so we are seeing a lot of cross and conflicting signals these days in the Forex markets .......and I apologies in advance if that pattern I teach here falls apart tomorrow and we are back to the drawing board

Truth gang ?

Thats just one simple patterm/Formation I use here to demonstrate the power of using strengthmeters (how else can you tell if USD and Yen are on the same side of a Zero ?)........ I encourage everyone to go to the drawing board abd play play play and show me what else works......because there are Zillions of currency patterns and intermarkets out there to play with

N

 

[Itshamish]

Here's your answer!
Let me google that for you

NPV is very busy and so are the rest of us

OK - I have done it for you - and anyone else who would like reminding!
Here goes...
USD, DJI and FX
1. When the dollar rises strongly, companies which
export a lot of goods or with
large overseas operations
will suffer as overseas sales translate into lower US dollar profits.
Many of the largest US companies fall into this category including PG, KO, CAT, DE, GE, BA, MSFT, INTC.
This drives prices of stocks in lower.

2. Carry-trade positions unwinding, money flowing to heaven-safe currency: USD.

3. Weak USD US stock market has been artificially inflated for the past couple of years by a weak dollar. Since US stocks are denominated in the USD, they're generally cheaper on the international market, and mutual funds, investment companies, etc. in Europe and Asia see them as a good deal, so they buy them up.

When the EUR was introduced, it was worth about 60% as it is now against the USD, and the Dow was around 7,000... now it's around 14,000. If we assume that the Dow is an accurate measurement of the stock market in dollars*, then essentially it didn't go very far in almost a decade.

5. When the dollar goes stronger, foreign investors see this as a good opportunity to take a profit by selling all their holdings, which causes the stock market to fall. If and when the USD does make a long-term comeback against other currencies, the US stock market is going to crash, and crash hard.

I would agree that a consistently stronger dollar might cause a correction in the markets, but they will not tumble overnight because of it, just as the dollar will not gain strength instantenously. Furthermore (and this is not to throw in any conspiracy theories), one implicit objective of the Fed is to protect large U.S. equity holders from losing their money, so in its usual manner, when this correction does happen, it will adjust the interest rates to stop the bottom from falling out of the stock market. Which will, in turn, lead to a weakening of the dollar against other currencies, completing the cycle.

6. When stocks start to go down, foreign investors and speculators buy-back the dollar for the dollar-denominated assets; the dollar's safe-haven appeal comes into play.
Also, Treasuries- a refuge when the market is "risk-on".
Gold usually moves goes against the dollar's direction.
When market tumbles, it's risk-on time and carry-trades are reveresed. This is known as "unwinding") becomes due and people buy what they had once sold to buy the stocks.
That is, when market is healthy, I fund my positons by borrowing Yen (with 0.5 percent interest rate) to buy USD, which buys US stocks. When risk materialises up, it all goes the other way around.

 

[NVP]

hey all

we ll there was about 40-50 pips there on offer re selling E/J

I was concious that the NFP's were pretty positive but I was trying to see how far things went before the Dow (inevitably) perked up a little as it has now .....

damn shame as if the results had been bad we would have had a better move on E/J !!

such is life........

Trading during NFP periods is dangerous and unrecommended .....but I never listen to my own advice....sigh.... :innocent:

N

 

[NVP]

OK - I have done it for you

thanks hamish - excellent ....

I would like to place a few caveats here and there on the information provided but no time at the moment......

later all

N

 

[NVP]

That's a really interesting and detailed response, thanks. You know, currency wars are great for a day trader because they intorduce exactly the type of volatility that we need for day trading to be effective. Look at the vol in the yen over recent weeks. It hasn't been like that for a long time!

Of course, as a result, longer term damage may well be done to the associated economies, but, if they are going to do it, and I can't stop it, so I will definitely try to profit from it

agreed

We are Traders not Economists........so trade what you see to make a living..... economists will always have jobs as they try to meddle and destroy countries with recycled ideas and advice.....

jees - if they were paid on (intended) results they would not last long....

N