Have you ever noticed that when a certain currency pair rises, another currency pair falls?
Or how about when that same currency pair falls, another currency pair seems to copy it and falls also?
If you said “yes,” you’ve just seen currency correlation in action!
If you replied “no,” you should quit doing unimportant things like sleeping, eating, and playing Fortnite and instead devote more time to chart analysis.
But don’t worry, we’ll start with the basics and work our way up.
The first half was simple. Currency. There’s no need for an explanation.
The second half of the game. It’s still simple. A correlation is a relationship that exists between two things.
What is Currency Correlation?
Correlation is a statistical measure of how two securities move in relation to each other in the financial world.
Currency correlation indicates whether two currency pairs move in the same, opposing, or completely random way across time.
When trading currencies, keep in mind that because currencies are exchanged in pairs, no one currency pair is ever completely isolated. (Did our “currencies” tongue-twister statement just confuse you?)
Unless you want to trade only one currency pair at a time, it is critical that you grasp how different currency pairs move in respect to one another.
ESPECIALLY if you are unfamiliar with how currency correlations might increase the amount of risk your trading account is exposed to.
If you don’t know what you’re doing when trading multiple pairs in your trading account at the same time, you might get KILLED!
Correlation is calculated into the correlation coefficient, which spans between -1 and +1.
A correlation value of +1 indicates that the two currency pairs will move in the same direction 100% of the time.
A perfect negative correlation (a correlation coefficient of -1) indicates that the two currency pairs will always move in opposing directions.
If the correlation is zero, the movements of two currency pairings are said to have ZERO or NO correlation, implying that they are fully independent and random. We have no notion how one partner will react to the other.
This class will teach you what currency correlation is and how to utilize it to become a wiser trader and make more responsible risk management decisions.