Correlations in trading how to take advantage
Today’s article is focused more on the educational side of trading. We will present market correlations and you can use them to your advantage.
Before we start, just a piece of advice which can improve your performance as a trader.
In any particular day, you should never have more than 2 trades per currency pair. If you do have, you are not being selective enough. One of the most annoying habits of retail traders is sitting in front of their desktops 24/7. We call this “the need to place a trade.” This is when you take trade after trade and you revenge trade and your account becomes a total mess.
You should never take more than 2 trades per currency pair in a day.
A good way for you to learn to be more “picky” on your trades is to understand market correlations. This concept, when understood and used properly, can change your trading forever. Let’s have a look at an example:
The Gold / Yen correlation:
Gold is by far one of the favourite trading instruments in the precious metals family and is very well known for its status as a safe haven asset. There is no doubt Gold is a market which attracts a lot of attention. What escapes the knowledge of many retail traders, is that Gold is positively correlated to the Japanese Yen.
Why is it? You may ask.
In all honesty, there is no real explanation to this. However, the fact that Gold and Yen both share the status of safe haven assets gives us a clue and in a way, validates the correlation. Another possible explanation for the Yen and Gold to move closely together is because the dollar-yen exchange rate is driven by a similar underlying force as the Gold: Real interest rates.
Though we do not want to know what everyone else knows already. We are 100% sure you want to see some Forex Charts as examples and know how we at Platinum trade Yen and Gold using that correlation.
Fair enough, let’s look at some forex charts:
Gold forex chart
USD/JPY forex chart
Result = Platinum methodology working beautifully
In the examples above, we had an opportunity on the 14th June when the FED confirmed its rate would move from 1.00% to 1.25%. The normal market reaction came into play. As we never panic over here and we understand the rules of news trading, we just had to wait for a confirmed sign. As soon as Gold hit that 3rd buy zone on our trading algorithm, we knew we could short Yen at whatever price it was showing in the Forex Charts. In many occasions, we will have a buy zone on Gold and a Sell zone on USD/JPY. That is a double confirmation for us and in such cases, we may opt to split the risk and trade in both markets.
The forex example we have shown you today is just one of the many tools which are provided to Platinum Traders to trade in the markets. We have covered only one of the correlations of the FX Market. The Loonie/Oil correlation is another one which gives us opportunities every week when Crude Oil Inventories are released. This will be a subject for another blog though.
When you learn to trade like this, you stop looking for trades and learn to be patient and wait for the price action in the forex charts to show you the entry. You learn to trade news without panicking and without trying to guess to which side the market is going to move since you actually wait for the news to be released. Do that and you will learn to take profits at will.
The Platinum Formula:
Perfect Fundamentals + Perfect Technical Analysis + Perfect Logic + Perfect Risk Management = Perfect Trade
The Platinum Way
At Platinum Trading Academy, United Kingdom, we teach all individuals from different walks of life to become a full-time trader or create a secondary revenue stream by trading part-time. We trade in an Institutional Way by letting the market come to us and being patient. Using Platinum’s Trading system you can take many Pips out of the market. We can ensure using this style of trading your trading will make a turnaround as you will become much more consistent.
If you want to trade like the professionals do, making consistently profitable returns from your trading, get in touch with us and we will demonstrate live exactly how we approach the markets.
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Hopefully, you have enjoyed today’s article. Thanks for reading! Have a fantastic day!
Live from the Platinum Trading Floor.