Learn the techniques on how to use market correlation. This will give you a hidden edge over your fellow traders in the market. This is critical for those who are looking for a strong understanding of market direction.
Understanding Market Correlation
When the price of two or more different pairs moves together we are talking about market correlation. Note that in forex the price of different pairs can move up on both, but that it can also be reversed. This means that when one moves up, the other consistently moves down. We talk about market correlation in both cases.
Correlations are dynamic, they will always change over time. They can actually vary very much over different time periods. And even the correlation on for instance the 4h chart may vary a lot from the correlation on the 15min or weekly chart.
Market Correlation doesn't Matter If Your Technical Analysis Is Not Up To Par
Market Correlation doesn't move the forex markets. A confluence of other factors move the market - most notably central bank policy. So if you see correlation among a few pairs or a whole currency group, you have a great tool to determine the direction. With this in mind you can use your technical analysis skills to assess which pair is the best to trade in that direction. However, if you lack the technical analysis skills, then knowing market direction is not very useful at all. For instance, you can be aware of the direction, but if you don't read the market well enough to determine the timing and stops of your trade, there's a good chance you will get stopped out. And getting stopped out and later seeing the trade move in the direction you predicted is a major painful thing to see for any trader.
So as always with trading tools, make sure your read of the story is good and before that; get your basics cemented.
Watch the video at the top for the full lesson so you can continue to enhance your skills and be better everyday.
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Editors’ Picks
EUR/USD struggles to build on previous week's gains, stays below 1.0500
EUR/USD stays under modest bearish pressure and trades below 1.0500 on Monday. The cautious market mood supports the US Dollar and limits the pair's upside, while trading action remains subdued, with US markets remaining closed on Presidents' Day.
GBP/USD ranges near 1.2600 as US Dollar steadies
GBP/USD fluctuates in a tight channel near 1.2600 in the second half of the day on Monday. Trading volumes are likely to remain thin as financial markets in the US enjoy a log weekend in observance of the Presidents' Day holiday.
USD/JPY off lows but heavy near 151.50 amid upbeat Japan's Q4 GDP
The Japanese Yen sticks to its strong intraday gains in the wake of a strong domestic Gross Domestic Product print, which reaffirmed bets that the Bank of Japan will hike interest rates further.
Editors’ Picks
EUR/USD struggles to build on previous week's gains, stays below 1.0500
EUR/USD stays under modest bearish pressure and trades below 1.0500 on Monday. The cautious market mood supports the US Dollar and limits the pair's upside, while trading action remains subdued, with US markets remaining closed on Presidents' Day.
GBP/USD ranges near 1.2600 as US Dollar steadies
GBP/USD fluctuates in a tight channel near 1.2600 in the second half of the day on Monday. Trading volumes are likely to remain thin as financial markets in the US enjoy a log weekend in observance of the Presidents' Day holiday.
Gold clings to modest daily gains near $2,900
Gold regains its traction and trades in positive territory near $2,900 following Friday's sharp decline. Although financial markets in the US remain closed on Monday, investors will scrutinize political headlines and comments from Fed officials.
Five fundamentals for the week: Peace talks, Fed minutes and German election stand out Premium
US President Donald Trump remains prominent, especially in a week when high-level peace talks kick off. Nevertheless, the Commander-in-Chief competes with the world's most powerful central bank, and other events are of interest as well.
Bitcoin Price Forecast: BTC stalemate soon coming to an end
Bitcoin price has been consolidating between $94,000 and $100,000 for almost two weeks. Amid this consolidation, investor sentiment remains indecisive, with US spot ETFs recording a $580.2 million net outflow last week, signaling institutional demand weakness.
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