Best Thread Correlation Trading - Basic Ideas and Strategies

[NVP]

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Date:
Subject: FX Correlator
From:To: [email protected]

Hello Neil (NVP),
I saw your posts and FX Correlator indicator and set it up on charts for next week. I've been testing different currency strength meters and relative strength trading methods back to Trader 101s posts on ForexFactory I tried to visit your site but it looks like its down at the moment.

Are there any version upgrades to the V.1 you posted at Trade2Win forum?

One function I thought could be handy on the FX Corrie would be to have a pop up alert when both the USD and JPY both crossed the zero line. That way I can get on with other work and not worry about missing a setup on the charts. An SMS or email message would also be good insurance.

If you have any other related indicators or current research I'd be interested to know about it. Are you on other forums perhaps?


Thanks,
XXX



Hey there XXX

yep apologies my Website is down and I am trying to find time to get it all virus checked and fixed

the only free software I offer is at my T2W thread and go to the signature area for latest version

Trader 101's basket work is pretty good at FF (also check out Dreamliner , Steve hopgood, FerruFX ) but they ignore some simple rules / ideas that will make it more profitable ...I tried to help years ago but the FF community are a funny group and told me to mind my own business as they thought I was butting in on their little club......so i stay at T2win !

sure many things can be done to improve the Basic model - feel free to programme it yourself if you want .......I will try to upload some more fancy alert based versions whene i get time as I do have hundreds for versions built over the years

NVP

 

[NVP]

From: xxx
To: [email protected]
Subject: Do you have software available?
Date: xxx


Trading forex can be very difficult. These strength meters are without a doubt the way to go. There is a guy out here named (name removed) who has a course and he is charging 10,000 us dollars. I have watched a couple of your videos. I have a good strength meter with (name removed) it will handle 10 pairs(extra 2 being the HKD and MXN) Not sure how exactly to trade it. Your correlation software seems to have other functionality that this one does not. Any help would be appreciated. Thanks ...XXXXX.


Hi there XXXX

I have been trading Forex strengthmeters since the early 2000's - in the very early days of its usage in the retail arena.

I adapted my free indicator from some of the early indicators out there (that were far to basic and not to my liking so i improved them !)

no offence to (name removed) but what I have seen of his indicator (when i took a look a while back) is a very very very expensive piece of kit for what it does ......:innocent:

REMEMEMBER - its not about the Strengthmeters or the fancy charts or graphs ...trading strengthmeters is about the years and years of research needed to understand the interactive dynamics of currencies and other markets and the patterns that form to provide signals for profitable trades ...........only you can do that to satisfy yourself of its profitability

in the early days of learning before this knowledge....... all you have is a simple approach needed as you learn.......when a currency is diverging upwards away from the zero buy it ........when it is diverging down away from the Zero sell it !!!

if (name removed) and other new entrants can only truly offer that as their basic system (which they do) its not worth anything more than the feeds and perhaps some basic programming for the fancy screens they show you ......peanuts $$ !!

and these are not much more use than a few of my FREE indicators loaded and used together ......they are doing the same believe me.....believe me ......I know all the formulas of their systems already as its not difficult to understand after more than 10 years of knowledge............and (name removed) worked for 12 years as a top programmer for the quant trading teams at a global Bank - so he is very very expert trader

(confidential paragraph removed)

I am asked to teach and mentor again on a daily basis by people - but am busy with other things ....however the more I see silly prices out there to sell Strengthmeters to traders I may still do something on a more reasonable and fair basis...and it will be on a totally higher level re the approach than these basic basic toy ideas you see.... :smart:

Neil
NVP

 

[NVP]

REMEMEMBER - its not about the Strengthmeters or the fancy charts or graphs ...trading strengthmeters is about the years and years of research needed to understand the interactive dynamics of currencies and other markets and the patterns that form to provide signals for profitable trades ...........only you can do that to satisfy yourself of its profitability


what do i mean re above ??

I mean this below...........anyone can look at simple lines going up and down on a strengthmeter chart.......buy risers / sell fallers :innocent:..... but it takes years to then understand and anticipate what is really going on ........

so why not load up the Free Fxcorrelator an then try to answer some of those questions below yourself ........??

its free and doesnt cost $10,000 :smart:

N

 

[NVP]

Hi Traders, good thread. Just too long to read the whole thing!! When talking about correlations.. Has anyone brought up that you really cant just correlate two pairs?

I noticed a few posts on this thread that suggests you should not go long on both GBP/USD and EUR/USD. Well, that is only part of the picture.. Currency pairs work in groups of THREE not two. I call them Triads.. There is a Very short video that illustrates this..

Hey S

I notice you are a very experienced trader and trainer/vendor.......so beware the rules for this site and any links you provide may mean the post gets banned

anyway let me come back on these comments later today

N:smart:

 

[NVP]

Hi Traders, good thread. Just too long to read the whole thing!! When talking about correlations.. Has anyone brought up that you really cant just correlate two pairs?

I noticed a few posts on this thread that suggests you should not go long on both GBP/USD and EUR/USD. Well, that is only part of the picture.. Currency pairs work in groups of THREE not two. I call them Triads.. There is a Very short video that illustrates this..

hey there S

where did I say that ?......I believe I may state the possiblity of a duplication of correlation trading direction but at times the GBP and the Euro certainly do not share the same path .....:whistling

methinks a brief check of my study title (and the 600,000 views ?) and then a link to your site was the object of this excercise....nes pas ?

sure Triads are interesting and have merit, but as I respond to you in the same way .....they equally are small piece of the picture (?) .........

Triads
quartets
quintets
Septets
and then the full G8 ........


N

 

[NVP]

continuing this theme.....

heres the EUR vs GBP this year on a daily TF.....download my free FXCorrelator below in the signature area to create the same thing......

naturally - I have a lot more sophisticated ways of tracking this stuff....but even by using the 20/1 default and hiding the other Currencies (below) allows anyone to assess if you should truly not trade EUR and GBP pairs together as these dudes are correlated too tightly

so what do people think ?........

me ?

well as usual in correlation matters ..........sometimes the magic works and sometimes not .........so dont get to hung up on generalisations ....and dont ever get too misquoted ....

now GBP and EUR and USD all in the same direction ?.....thats another story one day for the thread

N

 

[shakespeare515]

Forex Triad Correlation

hey there S

where did I say that ?......I believe I may state the possiblity of a duplication of correlation trading direction but at times the GBP and the Euro certainly do not share the same path .....:whistling


sure Triads are interesting and have merit, but as I respond to you in the same way .....they equally are small piece of the picture (?) .........

Triads
quartets
quintets
Septets
and then the full G8 ........


N

Hi NVP, I didnt say YOU said that.. I said "others" on this thread..
such as..

Hi NVP

This link may help to introduce newbies to what corelation is, and which pairs it affects.

For example, if you are position sizing using 2% of your account, you would not want to be long the EURUSD and at the same time short the GBPUSD.

Nor would you want to be long or short both pairs simultaneously.

There are other pairs notable for the same behaviour (ie: correlation).

Lately the EURUSD and USDCHF have been mirror images of each other - anti-correlation, if you like.

Correlation is something every FX trader needs to be aware of, to avoid such clashing, unless trading in a more sophisticated manner.

What he is saying is not "wrong" it just does not look at the complete picture..

If you are basing a trade idea for Eur/Usd on what Gbp/Usd is doing.. you are ignoring a large piece of the puzzle. The correlation video that was posted shows that currency pairs are correlated in groups of three, kind of like a 3 way see saw.

In other words it is very difficult to make an accurate trade or even mention a correlation between Eur/Usd and Gbp/Usd without looking at Eur/Gbp (the connecting triad pair).

Consider:
You see Eur/Usd at support.. ready for a move up.. Question: is it because of Eur strength? or USD weakness? Impossible to tell... So you look at Gbp/Usd.. It is also at a support level, looks like it could also be a good long trade.. now you have an idea that USD weakness is the main driver.. So what trade do you take?? My guess is that it would be wise to play the stronger currency (out of Eur and GBP) to trade agaiinst the weaker USD. The way to check that is to look at your connecting triad (in this case EUR/GBP) Does it show Eur poised for a bounce? or GBP? or is it flat? This will tell you a lot. If Eur/Gbp is at support (meaning ready for a move up) then Eur is strongest and trade would be Long Eur/Usd.

understanding this correlation helps in many ways, the first is debunking a commonly held myth among forex traders that gbp/usd and Eur/Usd are somehow correlated and base eur/usd trades on the direction of the gbp/usd pair. of course these two pairs ARE correlated when also monitoring eur/gbp to complete the "triad," but without looking at Eur/Gbp you are not seeing all the info to make a solid trade decision..

The main advantage to understanding triads, is it is easier to identify "perfect storm" type trades.. In other words if you can identify a situation, for example, where Eur/Usd and Usd/Jpy are BOTH oversold and are Both due for an upward bounce, then you KNOW your trade is EUR/JPY LONG (Eur/Jpy connects Eur/Usd and Usd/Jpy) and to leave the other two alone.. and your entry for Eur/Jpy is when the two "sidecars" (Eur/Usd and Usd/Jpy) are both at support.

You will get a much more accelerated move on Eur/Jpy when Eur/Usd and Usd/Jpy are moving in the same direction. This is only understood by understanding the mathematical relationships in the Triad correlation.

also, these correlations never deviate.. they are purely mathematical and whenever there is a slight imbalance, the market quickly rebalances (within micro seconds) due to arbitrage.

Also, once you learn the basics of trading a "Triad" group. You never need to venture outside of that group. There are many trading opportunities within a triad, and it simplifies your analysis process.

Of course using correlations are not the be all and end all of forex trading, just one piece of the puzzle. it should be combined with whatever strategy you currently use to identify high probability trades.

Also, ur mention of quartets, septets, etc... that's not what i am talking about.. I am talking about concrete mathematical correlations..

Hope this helps..

I appreciate the discussion..

methinks a brief check of my study title (and the 600,000 views ?) and then a link to your site was the object of this excercise....nes pas ?

bummer.. was hoping we could keep it positive.. no need to be defensive, I would think you would like to provide the readers of your thread a complete discussion on your topic.. no offense meant. And congrats on your view count

...good trades,
Sam

 

[NVP]

bummer.. was hoping we could keep it positive.. no need to be defensive, I would think you would like to provide the readers of your thread a complete discussion on your topic.. no offense meant. And congrats on your view count

...good trades,
Sam

Hey Sam .........please excuse my paranoia - it tends to keep me out of most trouble so I do have to follow it ......and I would very much like to keep it positive as I welcome such discussions (most of which end up off thread sadly due to vendor issues and banned posts)............and I hope the moderators allow you to keep your links up to your site .........all I was doing was alerting you to the rules here at T2W.

meanwhile in continuation of this interesting area I have isolated some of your comments below that i have responded to ...........we are very much in agrrement in many ways ....I just think that triads are a mini-version of the G8 Strengthmeter and should be viewed as such with their limitations (but perhaps benefits as you point out ?)

no offence ever meant....
N

You see Eur/Usd at support.. ready for a move up.. Question: is it because of Eur strength? or USD weakness? Impossible to tell... So you look at Gbp/Usd.. It is also at a support level, looks like it could also be a good long trade.. now you have an idea that USD weakness is the main driver.. So what trade do you take?? My guess is that it would be wise to play the stronger currency (out of Eur and GBP) to trade agaiinst the weaker USD. The way to check that is to look at your connecting triad (in this case EUR/GBP) Does it show Eur poised for a bounce? or GBP? or is it flat? This will tell you a lot. If Eur/Gbp is at support (meaning ready for a move up) then Eur is strongest and trade would be Long Eur/Usd.
Not if you have all of the G8 on a screen …you can instantly see who is stronger/weaker compared to the whole G8……why hide important messages with just 3 currencies ?....and then it allows the opportunity to see if perhaps the aussie dollar is creaming all the 3 currencies under discussion ?...


The main advantage to understanding triads, is it is easier to identify "perfect storm" type trades.. In other words if you can identify a situation, for example, where Eur/Usd and Usd/Jpy are BOTH oversold and are Both due for an upward bounce, then you KNOW your trade is EUR/JPY LONG (Eur/Jpy connects Eur/Usd and Usd/Jpy) and to leave the other two alone.. and your entry for Eur/Jpy is when the two "sidecars" (Eur/Usd and Usd/Jpy) are both at support.
All I see you describing is a big big E/J bear position……..with USD sitting in the middle …….so why would I use 3 charts on what can be seen much more clearly on 1 indicator ?........and sure the divergence on the E and the J is probably outside the standard ATR’s ………..but I find that the concepts of overbought / oversold can be indeed very costly – especially to inexperienced traders ………….these positions can frequently continue on their path and confound the experts who get stopped out chasing them …I’m a trend follower at heart and don’t tend to take to much notice of the extremes on my indicators …………


You will get a much more accelerated move on Eur/Jpy when Eur/Usd and Usd/Jpy are moving in the same direction. This is only understood by understanding the mathematical relationships in the Triad correlation…….sure – no argument there……….thats just pure math ….but much more obvious and measurable on a Strengthmeter than using 2 or 3 charts


Also, once you learn the basics of trading a "Triad" group. You never need to venture outside of that group. There are many trading opportunities within a triad, and it simplifies your analysis process.
But what 3 currencies to chose ?............and why limit yourself when there are many other currencies probably delivering better trading opportunities at that time.......why restrict your options ?..........I had a mentor who traded the E/G/U triad very profitably for many many years but we always disagreed on this point ! :smart:

Of course using correlations are not the be all and end all of forex trading, just one piece of the puzzle. it should be combined with whatever strategy you currently use to identify high probability trades….
I tend to disagree ………Observing the correlation and dynamics within the G8 is generally all I need to determine signals and profitable trades ……….and what we are describing here regarding simple direction and momentum on just 3 currencies activity is useful and a good system…….. but it ignores the immensely more valuable benefits of seeing all 8 currencies inter-relationships ……..simple is good …but I believe that being too simple is naive and will be costly in the long term


lso, ur mention of quartets, septets, etc... that's not what i am talking about.. I am talking about concrete mathematical correlations………….hmmm.....I believe that any of these combinations above deliver the same mathematical behavior as the triads within them ……its just adding more variables to the pot

 

[NVP]

ok dudes duty calls elsewhere ...........will cathc up later

N

 

[NVP]

hey all

just a quick update on the week

I see the yen has started well (right chart weekly 1ma )......its actually due some time in the north after nearly a month of bearish activity ......I might be tempted if I see the Dow fall today

not sure what I would sell yet ..........the Euro looks to be starting the week badly......also from the left charts (daily 20/1 ma) convergence signals you can see we may get a lot of retracements this week

or maybe not :smart: ...........remember the thing to remember about trading is that nothing is for sure re the next bar/hour/days/months direction.....we assess the signal and trade or dont trade ..... thats it

N

 

[Jedster2001]

Hi NVP, I didnt say YOU said that.. I said "others" on this thread..
such as..

What he is saying is not "wrong" it just does not look at the complete picture..

If you are basing a trade idea for Eur/Usd on what Gbp/Usd is doing.. you are ignoring a large piece of the puzzle. The correlation video that was posted shows that currency pairs are correlated in groups of three, kind of like a 3 way see saw.

[snip]

...good trades,
Sam

That was an interesting post. I think I would probably say a couple of things.

Firstly, I have always looked at EURGBP as a plodder. I think of it as taking up the slack. There are good sound economical reasons that keep the EUR and GBP correlated. Obviously, when particular news comes out that is solely related to one of them, then we will see just one of them strengthen or weaken, and of course, if longer term economic factors mean that one is say, stronger than the other, then we will see the chart move over time, but other than that, it just plods along, not really doing much. Another pair that is the same is the AUDNZD. Again, due to those countries economics , it just plods along, not doing much, occasionally moving when something happens that affects just one of the currencies.

So, if I saw weakness in the dollar, I'm not sure I would switch to the EURGBP chart to determine how to trade it. That just doesn't strike me as being the best way to look at it. For example, without even looking at the EURGBP chart I pretty much know in the last month or so, it must have been falling. I know this because there has been inherent strength in Sterling and it has generally been strengthening across the board. That chart isn't really going to help me decide what to trade. I do see what you are saying - you are saying, you don't know what to trade, EURUSD or GBPUSD, so you look at the EURGBP chart and see it has been falling, so GBP must be stronger than EUR, so we'll trade the GBPUSD. However if I considered all the currencies, I would be able to see that in fact currency x was far stronger. Last week as an example, it was the NZD that was particularly strong and that would have arguably made a better trade than GBPUSD, however, I wouldn't have known that if I was only looking at the EURGBP chart.

Secondly, whilst we know that mathematically 3 currency pair charts are obviously all inter-related, it might be better to say simply that ALL currencies are inter-related, so we should be considering all their strengths. Once you make a move away from considering just one currency pair and instead consider the strength and weaknesses of 3 currencies, then why would you restrict yourself to just those three? If I looked at the EURUSD and GBPUSD and saw weakness in the USD, but didn't know whether to trade the EUR or GBP against it, I wouldn't switch to the EURGBP chart, because more than likely, it will just be plodding along not doing much. But, by switching to see the relative strengths and weaknesses of all charts, we get to see the overall picture.

There was one other thing that confused me a little, I wonder if you might be able to expand on this as I guess I missed the point:

understanding this correlation helps in many ways, the first is debunking a commonly held myth among forex traders that gbp/usd and Eur/Usd are somehow correlated and base eur/usd trades on the direction of the gbp/usd pair. of course these two pairs ARE correlated when also monitoring eur/gbp to complete the "triad," but without looking at Eur/Gbp you are not seeing all the info to make a solid trade decision..

So, the first you say that we should be "debunking a commonly held myth among forex traders that gbp/usd and Eur/Usd are somehow correlated"
and then you follow it up and say
"of course these two pairs ARE correlated..."

Now I know I snipped a bit there, but, that really confused me. I don't understand what you are trying to say about how the EG affects the EU/GU correlation. If you are saying that you should look at the EG to determine what to trade against the dollar, then the same "argument" as above arrives in my head as, why would I just look at the EG, why don't I look at all the currencies.

Anyway, interesting post and healthy discussion...

J

 

[NVP]

That was an interesting post. I think I would probably say a couple of things.

Anyway, interesting post and healthy discussion...

J

yep .........I hope we can continue this further as we mainly get newbies here and are not able to discuss / expand our ideas and concepts as much as we like

N

 

[shakespeare515]

I Like the way you used the colors.. I'll follow your lead, I choose blue see comments below...

Hey Sam .........please excuse my paranoia - it tends to keep me out of most trouble so I do have to follow it ......and I would very much like to keep it positive as I welcome such discussions (most of which end up off thread sadly due to vendor issues and banned posts)............and I hope the moderators allow you to keep your links up to your site .........all I was doing was alerting you to the rules here at T2W.

Thanks!

meanwhile in continuation of this interesting area I have isolated some of your comments below that i have responded to ...........we are very much in agrrement in many ways ....I just think that triads are a mini-version of the G8 Strengthmeter and should be viewed as such with their limitations (but perhaps benefits as you point out ?)

no offence ever meant....
N

You see Eur/Usd at support.. ready for a move up.. Question: is it because of Eur strength? or USD weakness? Impossible to tell... So you look at Gbp/Usd.. It is also at a support level, looks like it could also be a good long trade.. now you have an idea that USD weakness is the main driver.. So what trade do you take?? My guess is that it would be wise to play the stronger currency (out of Eur and GBP) to trade agaiinst the weaker USD. The way to check that is to look at your connecting triad (in this case EUR/GBP) Does it show Eur poised for a bounce? or GBP? or is it flat? This will tell you a lot. If Eur/Gbp is at support (meaning ready for a move up) then Eur is strongest and trade would be Long Eur/Usd.
Not if you have all of the G8 on a screen …you can instantly see who is stronger/weaker compared to the whole G8……why hide important messages with just 3 currencies ?....and then it allows the opportunity to see if perhaps the aussie dollar is creaming all the 3 currencies under discussion ?...

You are not hiding anything, you are seeing everything. You can look at as many triads as you like.. I suggest starting with one until you are comfortable with it, then then it doesnty matter which triad you are looking at, they all behave similarly. As a trader gets more experience watching the markt this way, it is easy to add more triads..

So if you are using the most popular triad, Eur/Usd, Usd/Jpy, Eur/Jpy, You could add a new triad just by adding Aud/Usd, and Aud/Jpy (cuz you already have the Usd/Jpy open.. Now you have added 2 charts but a complete new triad. You can build triads a number of different ways.


The main advantage to understanding triads, is it is easier to identify "perfect storm" type trades.. In other words if you can identify a situation, for example, where Eur/Usd and Usd/Jpy are BOTH oversold and are Both due for an upward bounce, then you KNOW your trade is EUR/JPY LONG (Eur/Jpy connects Eur/Usd and Usd/Jpy) and to leave the other two alone.. and your entry for Eur/Jpy is when the two "sidecars" (Eur/Usd and Usd/Jpy) are both at support.
All I see you describing is a big big E/J bear position……..with USD sitting in the middle …….so why would I use 3 charts on what can be seen much more clearly on 1 indicator ?........and sure the divergence on the E and the J is probably outside the standard ATR’s ………..but I find that the concepts of overbought / oversold can be indeed very costly – especially to inexperienced traders ………….these positions can frequently continue on their path and confound the experts who get stopped out chasing them …I’m a trend follower at heart and don’t tend to take to much notice of the extremes on my indicators …………

Why use 3 charts? because you are already looking at charts.. You are saying you need this 1 indy, I am saying I dont need ANY indicator, It is just knowledge of the correlation, you see it as your watching the market. I dont want to add indicators if i dont have to.

you're right, I didnt mean to say oversold (not trying to debate what trading system is best or what overbought/sold means, just how a correlation works..) I meant to say "at support" whatever the individual trader is using to show him that support.

You will get a much more accelerated move on Eur/Jpy when Eur/Usd and Usd/Jpy are moving in the same direction. This is only understood by understanding the mathematical relationships in the Triad correlation…….sure – no argument there……….thats just pure math ….but much more obvious and measurable on a Strengthmeter than using 2 or 3 charts

Not more obvious on an extra indy. It doesnt get more obvious then seeing it play out in the live market, you can see the "see saw" moving in different directions, rebalancing strength and weakness between the 3 currencies in real time. just by watching price action and understanding this correlation.

You are saying 2 or 3 charts as if i am adding charts for the sole prurpose of seeing this correlation, I am not.. You are already looking at the charts if you are trading this market.. so nothing additional

I have it a bit easier cuz I dont actually use traditional charts, I use multi timeframe dynamic fibonacci grids, so when i look at one currency pair grid, I am really looking at 4 diff timeframe charts onone grid. so when i stack a triad together, side by side, I am looking at 3 currency pairs but analyzing 12 charts and seeing multi timeframe suport and resistance. It makes it easier to see these correlations i admit, but they can be easily observed just by watching normal charts.


Also, once you learn the basics of trading a "Triad" group. You never need to venture outside of that group. There are many trading opportunities within a triad, and it simplifies your analysis process.
But what 3 currencies to chose ?............and why limit yourself when there are many other currencies probably delivering better trading opportunities at that time.......why restrict your options ?..........I had a mentor who traded the E/G/U triad very profitably for many many years but we always disagreed on this point ! :smart:

Not saying you MUST only use one triad, but it makes it easier for new traders to learn and once they understand one triad like the back of their hand, the dynamics are the same for all triads.. so it becomes easier for them to watch more currency pairs thus expanding their horizons.. gotta walk before you can run.

As far as which currencies to choose.. I always recommend the Eur/Usd, Usd/Jpy, and Eur/Jpy because that triad has the most liquidity, tightest spreads, and consistent price action. depending on a trading style, many trading opportunities are found within this triad on a regular basis, so a trader never NEEDS to go outside this triad, but of course as you say, sometimes this triad is not moving as well as say a Aud/Usd, Usd/jpy, Aud.Jpy triad. so once a trader is comfortable watching more triads, he/she will have evolved and be able to take advantage of more trading opportunities..

Of course using correlations are not the be all and end all of forex trading, just one piece of the puzzle. it should be combined with whatever strategy you currently use to identify high probability trades….
I tend to disagree ………Observing the correlation and dynamics within the G8 is generally all I need to determine signals and profitable trades ……….and what we are describing here regarding simple direction and momentum on just 3 currencies activity is useful and a good system…….. but it ignores the immensely more valuable benefits of seeing all 8 currencies inter-relationships ……..simple is good …but I believe that being too simple is naive and will be costly in the long term


As i said before it doesnt "ignore" anything, it actually "includes" everything within a triad, just add triads to see more..

lso, ur mention of quartets, septets, etc... that's not what i am talking about.. I am talking about concrete mathematical correlations………….hmmm.....I believe that any of these combinations above deliver the same mathematical behavior as the triads within them ……its just adding more variables to the pot

I would love to see those.. here is the Triad Formula based on Eur, Usd, Jpy:
(Eur/Usd) X (Usd/Jpy) = (Eur/Jpy)

 

[shakespeare515]

Hi J,
Thanks for the comments, all great concerns. First, of course, you are entitled to trade the market any way you see fit.. I knda see the narket as an ink blot test. All traders seee the market differently..

I like NVPs use of color..
to your points,

That was an interesting post. I think I would probably say a couple of things.

Firstly, I have always looked at EURGBP as a plodder. I think of it as taking up the slack. There are good sound economical reasons that keep the EUR and GBP correlated. Obviously, when particular news comes out that is solely related to one of them, then we will see just one of them strengthen or weaken, and of course, if longer term economic factors mean that one is say, stronger than the other, then we will see the chart move over time, but other than that, it just plods along, not really doing much. Another pair that is the same is the AUDNZD. Again, due to those countries economics , it just plods along, not doing much, occasionally moving when something happens that affects just one of the currencies.

truly there are many fundamental reasons why currency pairs move. but what i am illustrating is a mathematical correlation that never waivers it is always true. (with the exception of the few microseconds of arbitrage that are continually rebaalncing currency prices..

So, if I saw weakness in the dollar, I'm not sure I would switch to the EURGBP chart to determine how to trade it. That just doesn't strike me as being the best way to look at it. For example, without even looking at the EURGBP chart I pretty much know in the last month or so, it must have been falling. I know this because there has been inherent strength in Sterling and it has generally been strengthening across the board. That chart isn't really going to help me decide what to trade.

"pretty much knowing" is not what I mean. you cant know if Eur/Gbp is falling because you see that Sterling is "generally" strengthening across the board.. if you are not going to look at Eur/Gbp, then you need to compare GBP and EUR to another currency like USD. how else will you see which is stronger out of Eur/Gbp? (unless you want to use an external indicator). what i am talking about is watching price action and understanding the correlation without any indicators..

I always see trading as a serious business, I dont like to make guesses.. I want to know exactly which currency is strongest or weakest and match them together at a support or resistance level.. just because you see the sterling is generally weak, is it the weakest? and how would you determine what is strong to trade against?

I do see what you are saying - you are saying, you don't know what to trade, EURUSD or GBPUSD, so you look at the EURGBP chart and see it has been falling, so GBP must be stronger than EUR, so we'll trade the GBPUSD. However if I considered all the currencies, I would be able to see that in fact currency x was far stronger. Last week as an example, it was the NZD that was particularly strong and that would have arguably made a better trade than GBPUSD, however, I wouldn't have known that if I was only looking at the EURGBP chart.

Secondly, whilst we know that mathematically 3 currency pair charts are obviously all inter-related, it might be better to say simply that ALL currencies are inter-related, so we should be considering all their strengths. Once you make a move away from considering just one currency pair and instead consider the strength and weaknesses of 3 currencies, then why would you restrict yourself to just those three? If I looked at the EURUSD and GBPUSD and saw weakness in the USD, but didn't know whether to trade the EUR or GBP against it, I wouldn't switch to the EURGBP chart, because more than likely, it will just be plodding along not doing much. But, by switching to see the relative strengths and weaknesses of all charts, we get to see the overall picture.

see my reply on NVPs post on how to add currency pairs to triads, I never said you had to exclude currency pairs...

There was one other thing that confused me a little, I wonder if you might be able to expand on this as I guess I missed the point:



So, the first you say that we should be "debunking a commonly held myth among forex traders that gbp/usd and Eur/Usd are somehow correlated"
and then you follow it up and say
"of course these two pairs ARE correlated..."

Now I know I snipped a bit there, but, that really confused me. I don't understand what you are trying to say about how the EG affects the EU/GU correlation. If you are saying that you should look at the EG to determine what to trade against the dollar, then the same "argument" as above arrives in my head as, why would I just look at the EG, why don't I look at all the currencies.

Well J, when you requoted, you omitted the parts in between your requote that actually answered your question.. BUt You are right the way i worded it was a little confusing.. waht i meant was if you are looking at only two pairs you are leaving out 33% of the correlation, so you are not seeing the whole correlation until you include the connecting triad pair.

here is the original quote:

understanding this correlation helps in many ways, the first is debunking a commonly held myth among forex traders that gbp/usd and Eur/Usd are somehow correlated and base eur/usd trades on the direction of the gbp/usd pair. of course these two pairs ARE correlated when also monitoring eur/gbp to complete the "triad," but without looking at Eur/Gbp you are not seeing all the info to make a solid trade decision..

Anyway, interesting post and healthy discussion...

J

Agreed. and in no way is what i am saying the ONLY way to look at the market, it just happens to be an efficient way to see currency strength without adding indys, cuz most people have indys out the wazoo, just trying to see trade signals..

...good trades,
Sam

 

[NVP]

mornin all

I see some new posts so will take a look later..............its good to get debate going on this very very powerful approach to Trading ..........Forex strengthmeters are still in early phase of adoption and many traders ignore or underestimate its uses........:smart:

N

 

[NVP]

ok heres the daily/weekly action :-

left chart 20ma on the daily - convergence phase continues......Dow is dropping below prev support....conditions support buys on USD and/or YEN

right chart 1ma on a weekly.......the Yen leads the buy trail so far with EURO sells .....only about 100 (-/+) pips on the board as yet though for that pair (far right chart)

N

 

[NVP]

#JPY index 5-min recovers this morning mainly against the #USD. #USDJPY 5-min broke the 99,20 support level

Hey H

thats nice ..............and I like the start point where all currencies are at Zero...........we look at standing start indicators .....but dont use it here as its more of a basic entry to strengthmeters thread

looks like a 500+ ma setting to get the granularity ?

this is an excelent approach to using strenghmeters as you can utilise standard price action methodologies to trade the currencies (S/R , higher highs , lowr lows , breach levels etc etc)..and i have discussed the 500ma at length in earlier posts over the years ..........

do you use this as part of your trading ? (well I have to ask )

N

 

[NVP]

sorry all ....tied up.......will get to things here when i can

 

[NVP]

meanwhile - another recent piece of correspondance

N


Hi XXX

I am surprised about XXX's lack of training - I am aware of the simple crossovers he uses to focus in on opportunities but I thought he had more regarding the currency lines and the stuff moving between the 2 line and 8 line etc etc ....hmmmm !!

I really should not comment in any forum or e-mail regarding the newly launched XXXX software as it may prove liabelous in the future ...all I will say is you will see some comments from "NVP" (me) on some of his videos and his affiliates videos in youtube ....their are plenty of MLM "non" traders supporting his launch who know nothing about trading and are looking for commissions as they recommend him .......to me its very very dissapointing that these things are allowed to happen in business ..........but thats the marketing business !!

I cannot tell you directly not to buy this utter overpriced rubbish from such a very inexperienced trader .......... but hopefully my communication is clear here ?!!

I may soon start a new Thread on T2W called Forex Strengthmeters - the Basics.........so be patient

N

 

[LittleTrader93]

Hello everybody,
i'm new to this tool, my settings are 200/20 since i like smoother lines instead of faster with spikes, since i'm not a scalper but a daytrader/swing trader.

Anybody uses the same settings?
Another question, do you guys put some horizonatal level on the strenghtmeter, to show overbought/oversold zones?

thanks!