Forex Correlations - This week Trading EURCADH1 ( continuation from last week write up)
This week we look at the same chart EURCADH1 which was trending. I have plotted a dynamic Forex correlation indicator with all correlations and another indicator showing just EUR and CAD plotted for ease of viewing. We see EURCADH1 currency pair was again trending this week . As you can see EUR (light blue line) was weaker and falling and was below CAD (dark blue line) plotted as baseline. Hence, we would go short EURCADH1 chart and stayed put till the close of session as the price was also below the custom built indicator plotted on the price chart.
Forex Correlations - Background
To be an effective trader, it is important to understand how different
currency pairs move in relation to each other so traders can better
understand their exposure. Some currency pairs move in tandem with each
other, while others may be polar opposites. Learning about currency
correlation helps traders manage their portfolios more appropriately.
Regardless of your trading strategy and whether you are looking to
diversify your positions or find alternate pairs to leverage your view,
it is very important to keep in mind the correlation between various
currency pairs and their shifting trends. It is clear then that
correlations do change, which makes following the shift in correlations
even more important. Sentiment and global economic factors are very
dynamic and can even change on a daily basis or even hourly basis. Strong correlations today
might not be in line with the longer-term correlation between two
currency pairs.
Happy Trading - Get Your Trading Edge
