Currency Correlation B
Currency correlation happens when the price of two or more currency pairs moves in conjunction with one another. There can be both positive correlation, where the price of the currency pairs moves in the same direction and negative correlation, where the price of the currency pairs moves in opposite directions.
As a Forex trader you will need to determine this correlation and how is its degree? this will be very useful at trading as we will review in the following.
This indicator depends in its calculations on Pearson's correlation coefficient
How to use Correlation Indicator?
- You can simply choose currency pairs you want to be watched by the Indicator and write their names at Inputs
- A table will appear in indicator sub window contains symbols you've entered and their instant correlation percentage with the current pair on chart
- for watching the correlation history of any of them you simply click on its name on the table and the indicator graph will change to show it .
How to use it on trading?
In the table of the indicator you can watch 5 Currency pairs and its Correlation degree with the current pair, and the pairs shows more than 70 are almost similar in its direction (trend) to the current pair and this is called Positive Correlation.
But on the other hand these pairs less than -70 are very different and go in the opposite direction (trend) and it is called Negative Correlation.
So it is very important to understand the relationship between currency pairs for many reasons as:
- Confirm your analysis: you can apply your analytical strategy to more than one pair that correlated positively to confirm your decision.
- Trading more than one pair at the same time: You avoid taking the same positions with the currency pairs that move against each other, at the same time. Additionally, you avoid taking the same positions with several correlated currency pairs at the same time and so you do not multiply your risk.
- TimeF: it refers to any timeframe you would select from a dropdown list, which indicator will use in its calculations. if you want to choose the same timeframe of the chart you must choose "current".
- Price: it refers to price used in calculation and also it has a dropdown list which have all price types you may need
- CorPeriod: the number of bars used for the indicator calculations. it must be not less than 1.
- it is a positive value (decimal fraction) and must be not more than 1.
- if a currency pair get more than this value, so its symbol will be colored in Green and it means that there is A Positive Correlation. But if a currency pair get less than the negative value of this value you entered, so its symbol will be colored in Red and it means that there is A Negative Correlation.
Example: eEURUSDfx ========> Prefix = e , Suffix = fx
Notice: this indicator may not work well On Tester, Because it Works on the Data of more than one currency pair