Posts Tagged ‘currency codes’
Applying Currency Correlation When Trading Forex
October 14th, 2009
Using Correlations In Currency Trading
When you first start in forex trading, you will soon realize that some currency pairs seem to move in a similar pattern while others move in opposite directions. Understanding and using this relationship between currency pairs is crucial to your long term market trading success. Many traders are simply unaware of these relationships, and wonder why their trading positions remain static or largely negative when they have several open positions. The reason is simple, it’s called currency correlation.
Currencies can be correlated either positively or negatively. If two pairs are perfectly correlated in a postive way they will have a correlation factor of 1. When they are correlated in an inverse relationship, then their correlation factor would be -1. For example if two data sets are directly correlated, then as one data set moves by one unit, then the other will move in the same direction by the same amount. In the case of a negative correlation, when one data set moves down by one the other data set will also move down by one. The closer data sets are to the factor being either one, postive or negative the closer they are correlated.
I do not propose to explain the maths of calculating the values, but it is important when trading, to understand these relationships between currencies. I is also important to appreciate that whilst two pairs may relate to one another over a period of a few hours or days, this does not necessarily mean that this will continue for weeks or months. Various factors may affect this relationship where the correlation value falls or becomes meaningless. As a rule of thumb, if this is below 0.85, then the relationship has less meaning.
How To Use It To Manage Exposure
Now that you know how to calculate correlations, it is time to go over how to use them to your advantage.
First, they can help you avoid entering two positions that cancel each other out, For instance, by knowing that EUR/USD and USD/CHF move in opposite directions nearly 100% of time, you would see that having a portfolio of long EUR/USD and long USD/CHF is the same as having virtually no position – this is true because, as the correlation indicates, when the EUR/USD rallies, USD/CHF will undergo a selloff. On the other hand, holding a long postion GBP/USD and EUR/USD is similar to doubling up on the same position since the correlation is so strong.
Using Currency Correlations to Hedge Your Position
If a pair correlates perfectly and is a direct relationship then buying one and selling the other will work as a hedge. For example, suppose we think the EUR/USD is going up, this implies that the USD/CHF is going down. If we bought 5 contracts of the first pair and sold 5 contracts of the second, if they were in perfect inverse correlation, our balance would stay much the same. In order to make money, we could therefore decide to weight our decision, but still use a hedge. By buying 5 contracts of the first pair as before, but only selling 3 of the second, we still have a hedge if it all goes wrong, but we have weighted our decision by 2 contracts on the EUR/USD going up. Using your correlations with hedging is a powerful way to spread and manage the risk in your currency trading.
Forex Correlation Code Platform
While this is a powerful tool to improve your trading bottom line. Wouldn’t it be great if their were a way to automate this whole proccess. Well now there is and it is called the Forex Correlation Code.
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Forex Correlation Code Platform
While this is a powerful tool to improve your trading bottom line. Wouldn’t it be great if their were a way to automate this whole proccess. Well now there is and it is called the Forex Correlation Code.
Other sites talking about Forex currency correlation.
Generating Your Own Forex Correlation Tables
We’ve discussed how correl… Read more…
Importance of Pairing Currencies to Achieve Forex Correlation
Understanding forex correla… Read more…
An Introduction to Currency Correlation
Global currencies don’t ri… Read more…
When comparing pairs in the fo… Read more…
The Forex Correlation Code platform provides a unique mthod to improve… Read more…
Forex Trading Guide to Triple Digit Gains
October 9th, 2009
Forex Trading – A Simple Fact That Can Lead You To Triple Digit Gain
If you understand the fact enclosed, you will have a clearer insight in terms of what it takes to win at forex trading. Most traders have no idea of its significance and lose – make sure you understand it and its significance…
Here is the fact you need to know first:
30 years ago 95% of traders lost money and the same ratio applies today this is DESPITE all the advances we have seen in computer power, software, speed of communications and quality of news – the ratio remains the same.
So what you may say?
Well despite all the advances we have seen in technology, its NOT helped the ratio of winners to losers and this leads to some obvious conclusions.
Success does NOT rely on the following:
– Up to date news
– Complicated mathematical formulas
– Trying to be clever or complex
You have numerous vendors telling you that prices move to mathematical formulas and they sell junk systems, on the back of this theory – but all they have is a simulation backwards so they fail going forward.
Many so called experts also tell you that you should work hard and be complex etc but this has never lead to success. There is no correlation between working hard and being clever and success.
There is no Code of Market Behaviour
People think they can apply technology and crack the code of the market but there is no code and prices DON’T Move to complex mathematical formulas.
forex markets are simply an odds game and the way to win has been the same for decades:
– Don’t work hard – work smart
– Use a simple system as its more robust
– Forget trying to be clever or complicated – keep it simple!
– Above all you will need the traits of confidence and discipline to win
The Real Key to Success
Is a simple robust trading method which you can apply with discipline.
Discipline is essential and your trading success is reliant on this trait, as much as method. There is no point in having a good trading method, if you don’t have the discipline to trade it through a period of losses.
Losing periods happen and you must kee 1000 p going, until you hit a home run. If you have no discipline to follow your method you don’t have a method!
Most traders think they can predict and refuse to take losses or throw in the towel early whereas, if they had kept their discipline they could have won.
Method and Disciplined Application
The way to make money is to combine the two and get a solid forex education and have confidence in your system, so you can apply it with discipline.
Today most traders make the fatal mistake of believing in experts and automatic profits with no effort and they lose. If you want to win get the right forex education keep it simple, get a disciplined mindset and win.
Anyone Can Enjoy Success But..
Always remember – anyone can learn forex trading and win and it’s not the market that beats the trader, it’s the trader who beats himself.
You can’t blame your tools no matter how clever they are and as they say a bad workman always blames his tools!
If you understand the above you will see success is within your grasp, if you want to win you can – good luck!
Importance of Pairing Currencies to Achieve Forex Correlation
Understanding forex correlation… Read more…
Generating Your Own Forex Correlation Tables
Getting proper correlation… Read more…
Forex Correlation – Basic Position Plays
Mapping these to correlations … Read more…
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Tags: correlation codes, currency codes, forex trading, trading success | 
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