CURRENCY CORRELATION USED WHILE TRADING ON FOREX – Estimating of the capital markets forex signals currency rates is made in pairs, each of which depends on the different situations. So it should be noticed that there is a relationship and mutual dependence of the currencies.
Suppose that a forex signals capital currency pair x moves the same as the currency pair A. The progress of this pair is carefully followed by the trader. If the growth of pair X is possible than the signals trader should open a buy position. Trader hasn’t watched X pair carefully yet. At this time, the forex signals of technical and fundamental analysis show the possibility of reducing the price of this group graph. Then it is imperative to open an order with a sell order. In the end the forex trader will get a profit from trading the first pair but will come to zero from trading the second one because they have moved in correlation. ( CURRENCY CORRELATION USED WHILE TRADING ON FOREX )
Risk control can be implemented only with the help of the information about all currency correlations and also all changes which take place in correlation.
The range of the correlation coefficient is from -1 and +1. If the correlation coefficient is equal to +1 this means that X and A currency pairs move in the same area. A zero correlation means that the connection of the currency pairs has odd areas.
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Types of Currency Correlation
When the correlation coefficient is less than +1 this means that the forex trading currency pairs move in the same direction. If the value is close to +1 the currency pairs move in the same direction most of time.
If the negative value is more than -1 the currency pairs move in the opposite directions but not constantly. And the coefficient value which is close to -1 means that they move in the opposite directions most of the time.
How to Use Currency Correlation in Forex Trading
Correlation is a fast and constantly changing situation everyone searches correlation. Just look at the level of the correlation for the last two days and the correlation for a similar period. When there is an evident difference between the short-term and a long-term values trader should open an order. What should be done in such a situation? A trader can determine which currency pair moves more slowly and accordingly determine when to open an order.
The best situation is to trade the opposite pairs; So why not trade both pairs that follow suit – Comdol pairs are also the exact opposite seen. Trade EUR/USD as a BUY then remember to trade USD/CHF as a SELL. this is also known as COMDOL pairs.