Beginners often ask the question “what are pair correlations” in forex. This forex training is going to work at answering this question and more that you might have. The basics require you to know and understand pair correlations. Anyone who wants to succeed or create strategies to trade needs to examine all areas of forex, from the simplest history to the more in-depth technical strategies.
Forex Training on Pair Correlations
How much is one currency moving with another? Will a pair always move -100 and +100? The answer to the first question is what pair correlations in forex training are all about. You have to decide how a currency is moving against another. Is the currency moving in the same direction or in the opposite direction to another currency? The fact is currencies can be declining, but at different rates. They can also be increasing in value at different rates. The difference between the pair movements is how you make your profit. A pair is not going to move -100 and +100. It might happen that it is an even move, but more often than not it will be in a totally odd rate.
The EUR/USD and GBP/USD might move in the same direction. In fact these two pairs do tend to move in a similar manner where one might earn +83 for the day and another gains +70 for the day. On a week one pair might see +86 in profit, but the other pair went to a -87 for the week. Typically when you examine the EUR/USD and USD/CHF there is a negative correlation.
Note the difference in the base pair position for the USD for one pair versus the other. In forex training you should know or quickly learn that the USD will move in the same direction as it did for the base and quote pair. In other words if the EUR is gaining and the USD is not, then the USD is not gaining against the CHF. These are generalities and something you have to examine on your own to see the true correlations.
Forex Training: Usage of Correlation Results
Forex training for pair correlation is best when you intend on having multiple positions open in a day or week. If you intend on trading two or more pairs you have to understand the correlation between them. If you do not, it will lead to a big financial mistake. Furthermore you are able to hedge in the spot market because you can trade multiple pairs. If you are worried that you are misreading the data or that the USD could gain in one pair and thus the other pair signals are misread you can hedge your profits. You might break even, but that is better than a complete loss to some.
Hedging on its own can be dangerous and is something worth forex training in a demo account. The fact is simple- even though the correlation might show that one pair can offset another in a hedging situation it does not mean losses won’t happen. Trade carefully.