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Video: How to Use Currency Correlation to Boost Your Setup (Plus: End of Week Breakdown)

End of Week Analysis of the high probability opportunities for this week in Forex, Indices & Commodities.

Click on the video to watch the full breakdown

The best times to progress and learn in forex trading are those where the market has behaved contrary to what you expected.

With no trade ideas taken this week, here are the valuable lessons to take away:

  • Had we entered too early, we’d have taken major losses on multiple pairs. By not doing so, we’ve protected capital.
  • NFP weeks are not as high probability as the rest of the month.
  • Being very picky with your setups is worth it in the long term.
  • Your confidence builds when you stick to your plan.

And now, for the educational part.

Currency Correlation – A Brief Guide

Simply, some charts/pairs move in tandem, or in sync, with other markets. It’s never 100% the same, but it can be very closely matched when you overlay one on top of the other. Think of it like a brother relationship. Some charts are ‘related’ to others.

Positive Correlation

When one moves up, so the other one tends to. And vice versa. Here are some examples of correlated pairs:

EUR/USD -> GBP/USD
EUR/AUD -> GBP/AUD

Inverse Correlation

Then you also have those that are inversed, meaning the correlation is related but in opposite directions. When one moves up, the other moves down.

Here are some examples of inversely-correlated pairs:

EUR/USD -> USD/CHF
XAU/USD -> EUR/CHF

Reference Table

You will find a list of correlated charts online, but to get more accurate figures of proximity, here is a table.

How Correlation can be used

When you’re thinking of an entry, you want to see positive correlation on the brother pair/chart. At the same time, you can check the inverse correlated chart, to see the opposite happening. Go by the breaks of structural highs and lows to give you the clue.

Below, the chart on the left is where we’re looking to enter the buy, on the green zone. The correlated chart on the right, should be showing a similar pattern of a new recent high and a retracement – to continue higher. However, it’s not. Instead it broke the last low at the same moment in time. It doesn’t ‘match’ what we’d expect to see. Therefore, the Buy idea is now not as strong as it should ideally be, with this concept put into practise. So in this scenario, this clue indicates you may want to think twice about entering.

Watch the video for some examples from this week.

Written by: Dima Mihailovich, Technical Analyst for Forex Prop News

Contact and follow Dima on Twitter: @dimafpn

Image by Photo by David McBee, on Pexels

(Please note: All comments made in this video and article are not trading or investment advice and are for education purposes only. You are responsible for your own decisions and the risk that goes with it.)

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