Preschool>= Lesson Status ?
Kindergarten>= Lesson Status ?
Elementary>= Lesson Status ?
Grade 1 Support and Resistance Levels
Grade 2 Japanese Candlesticks
Grade 3 Fibonacci
Grade 4 Moving Averages
Grade 5 Common Chart Indicators
Middle School>= Lesson Status ?
Grade 7 Important Chart Patterns
Grade 8 Pivot Points
Summer School>= Lesson Status ?
High School>= Lesson Status ?
Grade 9 Trading Divergences
Grade 10 Market Environment
Grade 11 Trading Breakouts and Fakeouts
Grade 12 Fundamental Analysis
Grade 13 Currency Crosses
- What is a Currency Cross Pair?
- Crosses Present More Trading Opportunities
- Cleaner Trends and Ranges
- Taking Advantage of Interest Rate Differential
- Obscure Crosses
- Planning Around News and Fundamentals
- Creating Synthetic Pairs
- Euro and Yen Crosses
- How to Use Crosses to Trade the Majors
- How Cross Currency Pairs Affect Dollar Pairs
- Summary: Currency Crosses
Grade 14 Multiple Time Frame Analysis
Undergraduate>= Lesson Status ?
- Why Keep a Trade Journal?
- Benefits of Keeping a Journal
- What Should You Record in Your Journal?
- Potential Trading Area
- Entry Trigger
- Position Sizing
- Trade Management Rules
- Trade Retrospective
- Trading Journal Statistics
- Reviewing Your Trading Journal
- Difficulties of Keeping a Trade Journal
- Summary: Keeping a Trade Journal
Graduation>= Lesson Status ?
- Which Trading Style is Best for You?
- Which Currencies Should You Trade?
- What is Your Level of Trading Experience?
- Should You Be a Discretionary, Mechanical, or Hybrid Trader?
- What Kind of Mechanical System Suits Your Personality?
- What is Your Attitude Towards Risk?
- What Kind of Stop Suits Your Trading Style?
Summary: Currency Correlations
Like synchronized swimmers, some currency pairs move in tandem with each other.
And like magnets of the same poles that touch, other currency pairs move in opposite directions.
When you are simultaneously trading multiple currency pairs in your trading account, the most important thing is to make sure you're aware of your risk exposure.
You might believe that you're spreading or diversifying your risk by trading in different pairs, but you should know that many of them tend to move in the same direction.
By trading pairs that are highly correlated, you are just magnifying your risk!
Correlations between pairs can be strong or weak and last for weeks, months, or even years. But always know that they can change on dime.
Staying up-to-date with currency correlations can help you make better decisions if you want to leverage, hedge or diversify your trades.
A few more points to remember
- Coefficients are calculated using daily closing prices.
- Positive coefficients indicate that the two currency pairs are positively correlated, meaning they generally move in the same direction.
- Negative coefficients indicate that the two currency pairs are negatively correlated, meaning they generally move in the opposite directions.
- Correlation coefficient values near or at +1 or -1 mean the two currency pairs are highly related.
- Correlations can be used to hedge, diversity, leverage up positions, and keep you out of positions that might cancel each other out.
Examples of same direction moving currency pairs
- EUR/USD and GBP/USD
- EUR/USD and AUD/USD
- EUR/USD and NZD/USD
- USD/CHF and USD/JPY
- AUD/USD and NZD/USD
Typical inversely moving pairs
- EUR/USD and USD/CHF
- GBP/USD and USD/JPY
- USD/CAD and AUD/USD
- USD/JPY and AUD/USD
- GBP/USD and USD/CHF
When you find yourself wanting to trade two pairs that are highly correlated, its okay if you take both setups. Just make sure you have rules in place when you traded correlated pairs and always stick to your risk management rules!
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- What is Currency Correlation?
- How to Read Currency Correlation Tables
- Always Know Your Risk Exposure
- How to Use Currency Correlation in Your Trading
- Know that Currency Correlations Change
- DIY - Calculating Currency Correlations using Excel
- Summary: Currency Correlations