How to trade high correlated Forex pairs
In this video:
00:50 – How I use currency correlation to trade
02:10 – Trading the short time frame charts
03:03 – Multiple charts all showing similar setups
03:55 – EUR and GBP weakness against the AUD
04:10 – 12 Days of Christmas special offer now live
Today's video is all about currency correlation so let's get into that right now.
Hi Forex Trade, this is Andrew Mitchem here, the Forex Trading Coach and I'm in Adelaide at the world famous Jacob's Creek Winery. We've just had a nice sample of some of their reds and very good they are too.
Today's video and podcast is all about correlation. I've had an email from John and John said to me, “Hey Andrew can you talk about correlation? How you use correlation. How you look at different time frame charts and really what's your take on it? What do I need to do so I'm not taking too many trades or highly related and correlated?” Really, John, my take on it is this.
How I use currency correlation to trade
Because I'm a technical trader, I like to look at the charts and trade what I see. Give you an example. Just this morning, I've taken 2 trades on my charts that are on right now. One's on the euro Australian dollar. The other's on the British pound Australian dollar. You could argue that they're quite highly correlated because of course the euro and the pound can be quite highly correlated and of course they're both taking positions against the Australian dollar.
Technically wise on a data chart, they're looking fantastic. On a weekly chart that I'm trading in the same direction as what I'm seeing. For me it's not too big an issue. Overall I‘m seeing a lot of strength in the Aussie dollar right now as I'm recording this and I'm seeing some weakness in the euro and also the British pound.
I've taken both of those positions. Both sale positions. As I've just looked on my charts just before I started making this video, they're both looking very good. Of course, because they're highly correlated if both do end up making all go in the right direction then they're both likely to go that way.
Likewise if they go the wrong way then could be quite highly likely that they'll both maybe be stopped at if they both go wrong. That is really as I'm looking at the charts right now.
Trading the short time frame charts
When it comes to shorter of time frame charts, I'm still looking for trades in the same direction on those same 2 pairs. Really it's a case about seeing what's on the charts at the same … What's showing right now as I'm looking at my charts.
Of course, because I've taken those 2 on the daily time frames, if I see any other Australian dollar pairs today then if they're on different time frames charts then yes I'll take them if they're showing the good technical setup. For me today, I might be looking for buy trades on the Australian dollar pays.
I'm also seeing some weakness in Japanese yen so if I can see some opportunities to buy the Australian dollar Japanese yen, then it's all really trading with my longer term view and trading what I'm seeing on the charts right now.
Multiple charts all showing similar setups
To give you another example there John, if let's say, there were 5 Japanese yen pairs let's say. All showing the same looking signal at the same time then really that's probably a few too many to be taking unless you drastically reduce the risk that you take on all 5 of those. You could look at taking all 5.
The other way of looking at it is to say, “Well which of the corresponding currencies are looking either very, very strong or very weak against the Japanese yen at that time.” Then look at maybe picking out 1 or 2 of those. Exactly the same way that I've done today on the Australian dollar pairs.
Yes, I can see some strength in the Aussie US and the Aussie yen. Against the Canadian dollar also.
EUR and GBP weakness against the AUD
But to me because there's so much weakness in the euro and there's so much weakness in the British pound, those 2 technically and longer term with the strength and weakness are the best 2 pairs to be taking today.
It's my view on correlation. I hope that helps you.
12 Days of Christmas special offer now live
Don't forget that by the time you're watching this, my 12 days of Christmas sale will be live so make sure you jump on that. Obviously being 12 days of Christmas it's only available for 12 days. Three very different and very unique ways of jumping onto my course at a drastically reduced price. Great opportunity there for people to get onboard and to help develop your training over the Christmas period and then start trading into 2016. I hope that helps.
Although I'm in a vineyard as you can tell by the weather behind me, it's not looking too flash right now so I'm going to end the video and I'll talk to you this time next week.