Should You Trade Correlated Forex Pairs?
#371: Should You Trade Correlated Forex Pairs?
In this video:
00:23 – Trading correlated pairs and the TFTC Pattern Trader results update
00:36 – Confusion over trading correlated pairs
01:38 – Other correlated currencies
02:06 – Trading examples
04:27 – Trades from last week and how I traded the correlated pairs
05:52 – TFTC Pattern Trader update, +3.6% this week on autopilot
Should you trade correlated Forex pairs? Let’s talk about that and more right now.
Hey traders, Andrew Mitchem here, at the Forex Trading Coach with video and podcast number 371.
Trading correlated pairs and the TFTC Pattern Trader results update
And I want to talk all about Forex pairs and trading correlated pairs and also, I want to give you an update on the autopilot feature for the trade results this week for our fantastic software called Pattern Trader.
Confusion over trading correlated pairs
So let’s start with the question about Forex pairs and correlation. It came from a trader called Joseph and said to me, “Hey Andrew, I’ve got a question for you. I’m getting confused with knowing which pairs to trade and which are correlated. Can you help me out on a future video and podcast?” So, exactly what we’re doing. You would notice that a lot of currency pairs are quite highly correlated. For example, the Euro and the Swiss Franc are highly correlated. And what the EUR/USD does, the USD/CHF generally does the opposite because they’re both U.S. dollar related and the Euro and the Franc are related. So if the EUR/USD goes up, on your charts, generally, you will see the USD/CHF drop. You get other correlations acting like the Euro and the Pound, both are very similar markets, same time zone, et cetera. They tend to move quite similar, tend to.
Other correlated currencies
You get other correlations such as the commodity currencies. So in other words, the New Zealand dollar, the Australian dollar and the Canadian dollar, they all tend to move in correlation most of the time. And of course you get exceptions to that. And sometimes you’ll get the Aussie dollar move up, as the Kiwi dollar moves down. That’s generally something’s happened, whether it be a news event or something to split that correlation, but overall, you will find similarities there.
And so an example of this would be, let’s say you were trading the EUR/AUD. Now what the EUR/AUD does, let’s say it moves up. You will find that the AUD/CHF will likely go the other way. And so you have correlation there because you’ve got the Australian dollar featuring in both of those. And you’ve got the Euro and the Franc, which are correlated, so that becomes the issue that some traders have.
And with Joseph, who said, he’s confused with these, you can see why, and therefore you just need to be careful. Let’s say you were trading the AUD/USD and that was a buy trade. You probably wouldn’t want to be trading a sell trade at the same time on, let’s say the NZD/USD, because you’re unlikely to find the two would work out. Now, of course, there are exceptions again, you have to trade what you see and you have to have a trade plan in place. So if your plan is to take those two trades, regardless, then you do so. But if they’re on the same time frame chart, and they show at the same time of the day, then its quite likely there that one’s going to work and one, maybe not.
So what you need to do as a trader is you need to do one of few things. You have to look at this and go, do you know what, I’m going to take them both, but I’m going to reduce my risk on each trade. That is one option, or you can look at them and go, I need to take the strongest of these, so if the AUD/USD, let’s say it’s showing a bullish signal and the NZD/USD is showing a bearish signal. What I would then do is go and have a look at the AUD/NZD pair. And on that, you’re likely to see that the AUD/NZD is moving up as well, so that gives you a little bit more bias that you’ve getting this right with strength in the AUD/USD.
But also you then need to look at your strategy and how these are likely to play out. Where are you going to put your stop losses? Where are your profit targets? Where are they bouncing? What part of the chart are they in? All those types of things, and you might then do your analysis and go, do you know what? I’m just going to take one of these because it looks so much better than the other.
Trades from last week and how I traded the correlated pairs
And I’ll give you an example. Last week, I had three Euro related trades at the same time on the daily charts. I had the EUR/NZD, the EUR/JPY and I think it was the EUR/CHF as an example. And so what I did with those, as I said to my clients, I said, all three of these are looking really, really good, they’re on the same time zone, they’re all showing good trades on the daily charts.
So what do we do? We could go and find two nos and go, I’m going to take just the best one. But at the time all three were showing very, very high quality, A grade setups. So I’m happy to take them. It’s just that I know that I’m putting a lot of faith in the Euro moving in my anticipated direction for all three of those trades to work out, which by the way they did. But what I ended up doing is reducing my risk slightly, because I knew that all three were highly dependent on the Euro. So that’s how you can manage that as well. I think the issue that some people have is they see the EUR/USD moving up on lets say, daily timeframe. And then they see the EUR/JPY moving down on a one hour timeframe. And that’s where some of the confusion comes. But you’ve got to make sure that you have your plan in place of when this happens, you know exactly what you are going to do in those scenarios. And so that’s important for you to figure out what works best for you.
TFTC Pattern Trader update, +3.6% this week on autopilot
Now. Part two of the video onto our amazing software called TFTC Pattern Trader, this week right now, as I’m recording this, we’re in Friday morning here in New Zealand, still with most of one day still to go, I’m on 100% autopilot. My account is up another plus 3.6% right now, as I’m talking to you. So Pattern Trader right now has been only made available to my coaching clients. Plus last week’s video and podcast, I announced how you can get to access it yourself, even if you’re a non-client of ours. So in a few weeks time, we are going to be increasing the price for non-clients. We obviously need to look after our coaching clients and keeping the price to a minimum for those people who are already on board with us as coaching clients is going to be paramount for us.
But if you are interested in the software and you want to keep to the low price that’s run right now is like the introductory price, make sure you have a look at tftcpatterntrader.com I will put a link to that site on this video podcast page. Make sure you have a look at that. You can start it for free. There’s a free trial there with a basic version, but if you’re interested in going to the paid version, where you can trade live onto one of your training MT4 accounts, or have it completely automated, like I trade the software myself, within a couple of weeks the price will be going up.
So there’s a difference between coaching clients and non-clients. So right now take advantage of that lower price. The link will be on here, but like I mentioned again so far this week, plus 3.6% completely 100% auto trade autopilot. I’ve not touched a single trade. So amazing results there, especially when you consider what else is happening in the world of investments right now. So once again, this is Andrew Mitchem, at the Forex Trading Coach. I’ll see you this time next week. Bye for now.
Episode Title: #371: Should You Trade Correlated Forex Pairs?