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  1. #1
    Rookie Member

    Correlation Stra. !!!

    Hello again,
    I was reading, reading and readig, and admittedly the more I read the more it gets complicated there are too many strategies, I think one should pick up one.
    Now my question is " can I use correclations for trading?"

    I mean I read Dax has a positive influence on S&P that is to say if Dax keeps treding, S&P would also trend to some extend. So do you think it is would be stupid to open positions by watching correlated index if there is not any significant even occuring?

  2. #2
    Specialist Member marc's Avatar
    Maybe other's will correct me here, but I really don't think, that you can use e.g. a DAX chart to trade S&P ... there may be an influence, but not that much, that you can make exact enough predictione where the price will be at any given time ... and if they would move congruent, it wouldn't be of much help anyway, as you need to know when trends start/end ... so when both are trending, you still have no clue when one/or both trends will end

    I think there are simply ruling too much other factors in ... you can't be even sure, that when e.g. EURUSD is falling GBPUSD will fall in the same way/time ... ok it's somewhat different here, but still ...

    And yes, finding a strategy which suits you personally, is possible not easy ...
    If there would be a fool-proof 85-90% strategy for every day, every market situation, which works on every asset and timeframe ... and that would spread on internet, the business would stop to exist ...

    Howewer, that's just my 2c on that ...
    Last edited by marc; 02-01-2014 at 04:55 PM.

  3. #3
    Veteran Member hchandra's Avatar
    Talking about correlation, people already used it for predicting what will happen in the future,
    example:
    When US dollar go up that mean Oil/Gold/equity will probably come down, this is because everyone sold their instruments to hold more dollar, more dollar means more demand and dollar price go up.
    The same happen with Japanese Yen too, in the past its one of safe haven currency, whenever bad things happen, market players will fly to Japanese Yen and all other things will fall. (For now, not really because BOJ commitment to devalue their currency.)

    Famous correlation from the past:
    Gold - AUD/USD, NZD/USD
    Oil - CAD pair
    GBP/USD - EUR/USD Vs USD/CHF
    USD/JPY - INDU - SPX

    Correlation change with time, you will realize currently US dollar index movement with INDU not strongly correlated in this period
    Equity market can move up with dollar moving up too because other variable where US has better economy outlook while they taper.
    From my personal experience, looking for short term correlation really hurt your bias, and maybe the potential of gain will be little but long term correlation might be good to watch.
    Last edited by hchandra; 02-01-2014 at 05:28 PM.

  4. #4
    Specialist Member marvel's Avatar
    Correlation can be used to predict to some extend the price momentum in very short period of time. However it is not so useful with hourly or daily options. Even when we have big differences between them we couldn’t be sure that the price of the both indexes will behave exactly the same. But if you want to specialize on these markets, It could be very helpful for you to follow such correlations. Also there are many important correlations with the US dollar strength and it is good to watch closely Us Dollar Index.

  5. #5
    Administrator Martin Kay's Avatar
    Hi dlr.s, welcome to CommuniTraders forum! I moved this thread into strategies room, thanks!

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