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Correlation Coefficient (CC)

Unlocking The Power Of Correlation In Forex Trading.What Is Correlation In Forex Trading? Understanding the role of correlation is of paramount importance in the world of forex trading as it offers valuable insights into the intricate relationships between currency pairs. By delving into the depths of correlations, traders gain the ability to make well-informed decisions and effectively manage their risk. This comprehensive article aims to delve into the concept of correlation within forex trading, shedding light on crucial aspects such as the correlation coefficient, commonly observed correlation pairs, and practical examples of currency correlation strategies. In forex trading, correlation refers to the statistical measure of how two currency pairs move in relation to each other. It helps traders identify patterns and trends by studying the historical relationship between pairs, which can be instrumental in forecasting future price movements. The correlation coefficient, often denoted as "r," ranges between -1 and +1. A correlation of +1 signifies a perfect positive correlation, where the pairs move in the same direction, while a correlation of -1 denotes a perfect negative correlation, implying that the pairs move in opposite directions. A correlation close to zero suggests a weak or non-existent relationship between the pairs. Certain currency pairs are well-known for exhibiting strong correlations. For instance, the EUR/USD and GBP/USD pairs tend to show a positive correlation due to their close economic ties and geographical proximity. Conversely, the USD/JPY and EUR/JPY pairs often demonstrate a negative correlation as they are influenced by different factors such as monetary policies and economic indicators. Traders can capitalize on currency correlations by implementing various strategies. One such strategy is the hedging approach, where traders open positions in positively correlated pairs to mitigate risk. Another strategy involves trading divergences, wherein traders identify situations where the correlation between pairs deviates from its typical pattern, potentially indicating an opportunity for profit. Correlation Coefficient: The correlation coefficient is a statistical measure that provides insights into the strength and direction of the linear relationship between two variables. Denoted by the symbol "r," it ranges from -1 to +1, representing different levels of correlation. A correlation coefficient of +1 indicates a perfect positive correlation, meaning that the two variables move in the same direction with a strong linear relationship. For example, if variable A increases, variable B also increases proportionally. Conversely, a correlation coefficient of -1 represents a perfect negative correlation, where the two variables move in opposite directions with a strong linear relationship. In this case, as variable A increases, variable B decreases proportionally. A correlation coefficient of 0 suggests no linear relationship between the variables, indicating that changes in one variable do not consistently impact the other variable. The magnitude of the correlation coefficient reflects the strength of the relationship. Values closer to +1 or -1 indicate a stronger correlation, while values closer to 0 suggest a weaker correlation. It is important to understand that the correlation coefficient measures only linear relationships and does not capture non-linear associations between variables. Additionally, correlation does not imply causation, meaning that a high correlation between two variables does not necessarily imply that changes in one variable cause changes in the other variable. What is it Positive Correlation: Positive correlation refers to the relationship between two variables where they tend to move in the same direction. In forex trading, there are currency pairs that often exhibit a strong positive correlation. Here are a couple of examples: EUR/USD and GBP/USD: These currency pairs commonly display a positive correlation. Both EUR/USD and GBP/USD are major currency pairs, and they are influenced by similar factors such as economic data from the Eurozone and the United States. When one pair experiences an upward or downward movement, the other pair tends to follow a similar pattern. AUD/USD and NZD/USD: The Australian dollar (AUD) and New Zealand dollar (NZD) are both commodity currencies, meaning their value is closely tied to commodity prices. These two currency pairs often exhibit a positive correlation due to their geographical proximity and similar economic ties. When commodity prices rise or fall, it can affect both the AUD/USD and NZD/USD in a similar manner. ...And What is it Negative Correlation: Negative correlation refers to the relationship between two variables where they tend to move in opposite directions. In forex trading, there are currency pairs that often exhibit a strong negative correlation. Here are a couple of examples: USD/JPY and EUR/JPY: Both USD/JPY and EUR/JPY pairs tend to have a negative correlation. The Japanese yen (JPY) is considered a safe-haven currency, meaning that during times of increased risk aversion in the market, investors tend to seek the safety of the yen, causing it to strengthen. As a result, both USD/JPY and EUR/JPY pairs typically decrease in value, leading to a negative correlation between these pairs. USD/JPY and Gold: Gold is also considered a safe-haven asset. When there is market uncertainty or increased risk aversion, investors often flock to both gold and the Japanese yen as safe-haven investments. This can result in a negative correlation between USD/JPY and the price of gold. If the price of gold increases, indicating heightened risk aversion, USD/JPY often decreases as the yen strengthens. It's important to note that correlations can vary over time and are not static. Traders should regularly assess and monitor correlations to understand the current relationship between currency pairs. Additionally, it's essential to consider other factors and conduct thorough analysis before making trading decisions based on correlations. No Correlation: There are currency pairs in forex trading that do not exhibit a significant correlation, meaning their price movements do not show a consistent relationship. Here are a couple of examples: USD/CHF and GBP/JPY: USD/CHF involves the US dollar (USD) and the Swiss franc (CHF), while GBP/JPY involves the British pound (GBP) and the Japanese yen (JPY). These pairs usually have different fundamental factors influencing their exchange rates, such as economic indicators, monetary policies, and geopolitical factors. As a result, they often do not demonstrate a significant correlation. USD/CAD and EUR/GBP: USD/CAD involves the USD and the Canadian dollar (CAD), while EUR/GBP involves the euro (EUR) and the British pound (GBP). These currency pairs represent different combinations with unique economic drivers. The factors affecting the USD/CAD pair, such as oil prices and economic conditions in Canada and the US, may differ from those influencing the EUR/GBP pair, which is influenced by factors related to the eurozone and the UK. Therefore, these pairs often exhibit little correlation. Here are some examples of currency correlation strategies that traders may employ in forex trading: Hedging Strategy: Traders can utilize currency correlation to hedge their positions. For instance, if a trader is long on EUR/USD (anticipating it to rise) but also observes a strong negative correlation between EUR/USD and USD/CHF, they can take a short position on USD/CHF to hedge their risk. This way, if EUR/USD moves against their initial position, the potential losses can be offset or minimized by the gains in the short USD/CHF position. Diversification Strategy: Currency correlation can aid in portfolio diversification. By identifying currency pairs with low or negative correlations, traders can spread their risk across different currency pairs and decrease their exposure to any single currency. For example, if a trader is bullish on EUR/USD, they may seek currency pairs with a negative correlation to EUR/USD, such as USD/JPY or USD/CHF, to diversify their positions. Correlation Breakout Strategy: Traders may look for periods when the correlation between two currency pairs breaks down or significantly deviates from its historical norm. When a strong correlation breaks, it can present trading opportunities. For instance, if a historically positive correlation between EUR/USD and GBP/USD weakens or turns negative, a trader might consider taking opposite positions on the two pairs, expecting them to converge or revert to their usual correlation. Carry Trade Strategy: Carry trade involves borrowing in a low-interest-rate currency and investing in a high-interest-rate currency to capitalize on the interest rate differential. Correlation analysis can assist traders in selecting currency pairs for carry trades. For example, if a trader identifies currency pairs with positive correlation and implements a carry trade on one of the pairs, they can potentially reduce risk by avoiding carry trades on correlated pairs to prevent overexposure. How To Trade Forex Correlation Pairs: To effectively trade forex correlation pairs, follow these steps: Conduct market analysis: Stay informed about the currency pairs you are interested in trading and the factors that affect their correlation. Stay updated on economic indicators, central bank policies, geopolitical events, and other relevant news that impact currency markets. Identify correlation opportunities: Analyze the correlation between currency pairs to find trading opportunities. Use correlation coefficients, historical data, and technical analysis tools to identify pairs with high or low correlations. Develop a trading strategy: Based on your analysis, develop a trading strategy that aligns with your risk tolerance and goals. Decide whether you want to engage in hedging, pairs trading, or other correlation-based strategies. Create a trading plan that includes entry and exit points, risk management techniques, and position sizing guidelines. Implement risk management: Prioritize risk management to protect your capital. Set stop-loss orders to limit potential losses and take-profit orders to secure profits. Consider your risk-reward ratio and position size to manage risk effectively. Execute trades: When the conditions align with your trading plan, execute your trades through your trading platform. Monitor the market closely, and make adjustments or exit trades if the correlation dynamics change. Regularly review and adapt: Continuously evaluate the performance of your correlation-based trading strategy. Adjust your approach as needed based on market conditions, correlation changes, and the results of your trades. Keep learning and improving your skills as a forex trader. Conclusion: In conclusion, correlation analysis is a valuable tool for forex traders to gain insights into the relationships between currency pairs and make more informed trading decisions. By understanding the correlations, traders can effectively hedge their positions, diversify their portfolios, identify breakout opportunities, and implement carry trades. However, it's crucial to recognize that correlations are not fixed and can evolve over time, requiring traders to regularly monitor and adjust their strategies. By incorporating correlation analysis into their trading approach, forex traders can enhance their understanding of market dynamics and potentially improve their trading outcomes.
Education
by FOREXN1
16
Understanding Forex Correlation 📈📉Hello Traders! 😃 In this education idea, we are going to cover Forex Correlation and how you can use this information to help you make wise decisions in the market. Let's get started on this important topic... What is Currency Correlation? A currency correlation in forex is a positive or negative relationship between two separate currency pairs. A positive correlation means that two currency pairs move in tandem, and a negative correlation means that they move in opposite directions. Correlations can provide opportunities to realize a greater profit, or they can be used to hedge your forex positions and exposure to risk. If you can be certain that one currency pair will move alongside or against another, then you can either open another position to maximize your profits, or you could open another position to hedge your current exposure in case volatility increases in the market. However, if your forecasts are wrong when trading currency correlations, or if the markets move in an unexpected way, you could incur a steeper loss, or your hedge could be less effective than anticipated. What is the Correlation Coefficient? The correlation coefficient measures the correlation between different assets – in this case, currency pairs. It ranges from one number to another representing a perfect or negative correlation. For example, Mataf - www.mataf.net uses a correlation coefficient above 80 and positive to indicate that currencies move in the same way. It also uses a correlation coefficient above 80 and negative to show that the currencies move in the opposite way. Why is it Important to Know if Currency Pairs are Positive or Negatively Correlated? Currency correlation is important for traders to understand because it can have a direct impact on forex trading​ results, often without the trader’s awareness. As an example, assume that a trader buys two different currency pairs that are negatively correlated. The gains in one may be offset by losses in the other, which is often used as a hedging strategy. Meanwhile, buying two correlated pairs may double the risk and profit potential, since both trades will result in a loss or profit. They are not fully independent since the pairs move in the same direction. What Are the Most Highly Correlated Currency Pairs? The most highly correlated currency pairs are usually those with close economic ties. For example, EUR/USD and GBP/USD are often positively correlated because of the close relationship between the euro and the British pound – including their geographic proximity, and their status as two of the world’s most widely-held reserve currencies. How to Trade Forex Pair Correlations? You can trade forex pair correlations by identifying which currency pairs have a positive or negative correlation to each other. In the conventional sense, you would open two of the same positions if the correlation was positive, or two opposing positions if the correlation was negative. This is because if there was a perfect negative correlation between USD/CAD and AUD/USD having a long position on both pairs would effectively cancel each other out since the pairs would be assumed to move in opposing directions. But, if the correlation was perfectly positive, separate long positions on different pairs might help to increase your profits – or it could increase your losses if your forecasts are incorrect. Final Thoughts Before entering a trade with multiple positions, refer to a currency correlation chart to ensure that the pairs are positive or negatively correlated. It's important not to assume because some currency pairs may appear to move the same due to have the same base currency, but that is not always the case. Traders, if you liked this idea and would like to see more education topics, please let me know in the comments! I'd love to hear your opinion! 😉
Education
by BKTradingAcademy
8
Forex Trading IdeologyIn Forex trading, understanding price movements is essential for success. This article presenteds a conceptual ideology that metaphorically interprets price movements in Forex. We explored range trading as breakfast and conversation, where traders analyze overbought and oversold levels on a RSI 4 for potential breakouts. Trends were attributed to buyers and sellers, with uptrends indicating bullish sentiment and downtrends reflecting bearish sentiment. Breakouts were seen as pivotal decisions made during breakfast, confirmed through technical indicators like the RSI. Correlation and retesting allowed traders to analyze market relationships and make informed decisions. Trend continuation or reversal required careful analysis of price patterns and indicators. Finally , the closing and opening of trading sessions marked the end of one day and the start of another. By applying this kind of ideology, traders can gain insights into market dynamics, improve their strategies, and make informed decisions in Forex trading. ♧J
OANDA:XAUUSDEducation
by ATU_TAD
2
CORRELATION IN TRADINGHave you ever noticed a time when a certain product went up and another similar product went down at around the same time? Or when that product went down and another product also went down at the same time? If the answer is yes, then what you noticed was 'product correlation' in action. What exactly is product correlation? In the financial markets, correlation is a statistical measure of how two products move in relation to each other. Product correlation tells us whether two products tend to move in the same or opposite direction or whether they move completely independently of each other without any discernible pairing pattern over a specific period of time. Let us look at an example from a Forex (currency pair) trade (visual chart examples further below): If EURUSD goes up and USDJPY goes down, this is called a NEGATIVE correlation and if GBPUSD goes down and AUDUSD also goes down, this is called a POSITIVE correlation. When trading forex in particular, it is vital to remember that since currencies are traded in pairs, no one currency pair is ever totally isolated. Therefore, if you plan on trading more than one currency pair at a time, it is very important to understand how different currency pairs move in relation to each other. Correlation also applies to other types of products such as gold, silver, stocks and indices. Let us take a more detailed look at how correlation is worked out. Correlation is computed into a number known as the "correlation coefficient". This number ranges between -1 and +1: •Perfect negative correlation (an exact correlation coefficient of -1) means that the two respective products will move in the opposite direction 100% of the time. •Perfect positive correlation (an exact correlation coefficient of +1) implies that the two respective products will move in the same direction 100% of the time. •If the correlation is 0, the movements between the two respective products are said to have no correlation and their movements are completely independent from each other. In other words, there is no way to predict how one product will move in relation to the other. POSITIVE CORRELATION NEGATIVE CORRELATION PLEASE NOTE!!! Although correlation exists in the financial markets, it is NOT set in stone as a guarantee. Firstly, the correlation coefficient between products in the financial markets is rarely, if ever, at +1 and -1. Secondly and more importantly, every individual product has its own UNIQUE supply and demand measures and also has buyers and sellers that have their own UNIQUE motivations and goals in relation to that specific product. When a product goes up or down, this does NOT necessarily mean that it will always follow in line or go the opposite way to another product. Trade safely and responsibly! BluetonaFX
Education
by BluetonaFX
5
CURRENCY CORRELATION HEAT MAPCurrency correlation is important to understand in forex trading because it could impact your trading results often without you even knowing it. In this post, I will share some information about correlations in forex trading and how you are able to use it to your advantage to avoid unnecessary losses. Throughout my journey as a beginner trader, I have bought or sold 2 different currency pairs many times without knowing they are negatively correlated just to let the gains be offset by the other pair. My aim in this short post is to bring awareness about the positive and negative correlations between the currencies, specifically the most traded major pairs in the forex market. What is correlation in forex trading? A foreign exchange correlation is the connection between 2 different currency pairs. There is a positive correlation when 2 pairs move in the same direction, a negative correlation when they move in opposite direction, and no correlation if the pairs move with no relationship. In order to understand the relationship between 2 currencies, you must know the correlation coefficient and how it relates. What is correlation coefficient? A correlation coefficient represents how strong or weak a correlation is between 2 forex pairs. They are expressed in values and range from -100 to 100 or -1 to 1, with the decimal representing the coefficient. The higher the value of the correlation coefficient will largely reflect the movement of the other pair. See Figure 1. Correlation Heat Map For example, If the reading is -70 and above 70, it is considered to have strong correlation between the two. Readings anywhere between -70 to 70 means that the pairs are less correlated. With coefficients near the 0 mark, means little or no relationship with one or another. As traders, implementing risk management in our trading plan also reflects to correlations as you may think its a good ides to buy 2 highly correlated pairs thinking you will double your profits when in reality you may lose double the money as both trades could end up in a loss as you're doubling your risk. Figure 2 . Positive Correlation: EURUSD / AUDUSD As we can see on this line chart between EURUSD / AUDUSD, both pairs have a strong correlation coefficient as they are moving in almost the same direction. The correlation coefficient is valued at 75 as noted on the heat map. For example, if you place a buy order EURUSD and place a sell order on AUDUSD, expect a win and a loss in most cases. Figure 3. Negative Correlation: EURGBP / GBPUSD On this line chart, we can see that both of these parts are moving in opposite directions which are showing a negative correction between the two which in fact is also known as an inverted correction. The correlation coefficient is valued at -90 on the heat map which means if you place a buy order on EURGBP and a place a sell order on GBPUSD you may double your profits, but again you're doubling your risk. Figure 4. No Correlation: GBPJPY / USDJPY This line chart shows that both of these pairs move in the same direction with a correlation coefficient of -9 which has almost no correlation. If you place a buy order on GBPJPY and place a sell order on USDJPY, one of these trades will most likely end up in a loss. The pairs that have no correlation usually have different and separate economic conditions therefore coefficient values tend to be lower. In summary, understanding which pairs are correlated with one another will be able to help build your strategy and improve your trading results. Every trading strategy NEEDS to have Risk Management implemented in it as it is the key to sustainability for the long run. Trading is a marathon NOT a sprint. To learn more about forex correlations and their relationships, please see the following links. References: www.tradingview.com ca.investing.com If you felt this information was helpful, and hit the LIKE button and FOLLOW me for more educational posts and analysis. Feel free to leave a comment if you have any questions! I appreciate all the feedback. Thanks Trade Safe
UEducation
by ktlfx
12
Clear Path for Crypto AssetsI've laid out the likely paths for the total crypto market. For each spread graph analysis, I recommend zooming out and potentially comprehending the flows of capital from crypto to other markets. The correlation coefficient (top pane) shows the correlation of dollar/gold with the intrinsic relative value of BTC. If you are unsure how these spread graph indicators are used, check out previous posts fully explaining their application. Feel free to drop a comment with your questions or opinions.
CRYPTOCAP:TOTAL
by Sanzhar_m
Gold could be setting up for a big moveGold has been moving steadily higher in an upward sloping channel since late November 2022, when price was near 1732. On January 12th, the yellow metal broke above the top trendline of the channel near 1890. The next day, XAU/USD broke above horizontal resistance and the 61.8% Fibonacci retracement level from the highs of March 8th, 2022 to the triple bottom lows (near 1617), at 1896.5. The top trendline of the channel, horizontal support (formerly resistance) and the 61.8% Fibonacci retracement now act as strong support. The most recent price patten of a long green bar higher, and 3 bars lower within the body of the green candle could be bullish. If Thursday’s candle closes above 1929, this will be an extremely bullish candlestick pattern known as “Rising Three Methods”. In addition, Gold and the US Dollar Index (DXY) are negatively correlated with a correlation coefficient of -0.86. A reading of below -0.80 is considered a strong negative correlation. That is to say, when the DXY moves in one direction, XAU/USD should move in the opposite direction. Therefore, if the US Dollar continues its move lower, Gold should move higher. The next resistance level isn’t until 1998.35, which is the high from April 18th, 2022. Above there, price can test the double top highs near 2071. Below the 1890/1896 level, the next support is horizontal support at 1865.90, then the bottom trendline of the channel near 1840.
FOREXCOM:XAUUSD
by FOREXcom
3
BTC Analysis I'll cover fibonacci, volume range, general trend, macro correlation coefficient and MA analyses. This spread graph pins BTC against safe heaven assets, which include: Commodities (SP:SPGSCI), the U.S dollar (DXY/M2SL) and U.S Bonds (1/(TVC:US03Y+TVC:US02Y+TVC:US05Y+TVC:US10Y+TVC:US30Y)+1). Given representation of BTC's price accounts for various allocations of investors' capital to evaluate it's true intrinsic value. This favors accurate measurements. Fib Analysis The significant accuracy of demonstrated Fib levels confirm their precision. Current price level appears to be weakly breaking out of its fib resistance. General Trend Monthly: Weekly: BTC seems to be breaking out of the green parallel channel. In line with current economic conditions BTC's price is trading at it's lower price range. CC & MA Ribbon Pane above illustrates BTC's correlation coefficient with those safe heaven assets. A peak in their relationship implies a climax in BTC's short-term trend with those assets; acting as an RSI. Volume Profile This indicator is extremely useful, however difficult to use in long-term analysis. Through utilizing the ''free fall'' parallel channel(pink) and the indicator, evident resistance/support line intersections may be useful for evaluation. Conclusion Returning to the main graph, having had considered all these points, I presented an opinionated path of my prediction for BTC. ^ leave comments, questions and etc ^ I'll always reply ASAP
CRYPTOCAP:BTC
by Sanzhar_m
3
Gold could gather steam to the upsideThe selloff in USD/JPY has pulled the US Dollar Index lower with it. Could this be the year-end trade? Selling US Dollars? Notice in the bottom panel of the chart that the correlation coefficient between Gold and the US Dollar Index. The current reading is -0.92. Readings below -0.80 indicate a strong negative correlation between 2 assets. Therefore, if the strong correlation holds on the daily timeframe, when the DXY moves in one direction, Gold should move in the opposite direction. If it is the case that the DXY will move lower into year-end, Gold (XAU/USD) could continue with its move higher since testing 1614.95 three times during the autumn. The precious metal has bounced from the lows and retraced to the 200 Day Moving Average and the 38.2% Fibonacci retracement level from the highs of March 8th to the lows of September 28th, near 1789. However, the US Dollar move lower on Tuesday helped push Gold higher, closing up 1.73%. First resistance in XAU/USD is the December 13th high of 1824.52. Above there, price can move to the 50% retracement level from the previously mentioned timeframe at 1842.71, then previous highs from June 13th at 1879.16. However, be on alert. If the DXY bounces, support is at the 200 day Moving Average near 1785.65. Below there, price can fall to horizontal support at 1735.21, then again at 1676.90.
FOREXCOM:XAUUSD
by FOREXcom
BTC: What to Watch Going into US FOMC Presser This WeekThe US Federal Reserve Open Committee (FOMC) meets Tuesday and Wednesday this week. The hawkish monetary policy that has been fostered by the FOMC has put pressure on risk assets for much of this year. The Federal Reserve, along with other central banks around the globe, have been attempting to tackle sticky inflation that has been running at high levels not seen in decades. Though some argue that inflation may have peaked, it remains sticky and well above central banks' targets, which in the US is 2%. The Primary Chart above shows key levels to watch going into the FOMC presser. The downtrend line in blue, which is the zero line of the Fibonacci Channel, rejected price decisively on September 13, 2022. But with an important trendline such as this one, a retest of the line is not uncommon, similar to what occurred where BTC tested this line from March 28 to April 5, 2022 repeatedly before finally resuming the downtrend. This occurred at the end of BTC's powerful bear rally in March 2022 that coincided with equity indices' rally during that time. The area of resistance that could be tested should price rally or whipsaw higher this week is between $19,900 and $21,416. The Primary Chart uses a yellow-colored ellipsis shape to capture the strong, dynamic resistance levels of this down trendline. The Fibonacci Channel also shows the parallel diagonal lines that run at Fibonacci proportions to this downtrend line, which also should be watched for price support in the coming weeks. The Primary Chart also shows the key Fibonacci retracements of the entire summer rally. BTC has been holding just above its .786 retracement of the mid-June to mid-August 2022 rally. This level lies at $19,246, and price has made a couple attempts to break below it, each of which has failed, suggesting more sideways chop into the FOMC's meeting. The .618 retracement of the summer rally is at $20,521, a level that should also be watched closely. BTC struggled to get above this level in June and July with two failed breakouts. Finally, after getting above this line, BTC began declining and fell back below it after its mid-August 2022 peak. BTC attempted one more rally above it in early September 2022, but this ended up as a failed breakout, another bearish signal along with the downtrend line. In addition to the levels shown on the Primary Chart above, the Supplementary Chart below shows shorter-term Fibonacci levels that also may become relevant this week. Considering that this decline from September 13 to September 19, 2022, may be a completed wave 1 of some larger Elliott Wave structure, it becomes important to consider the retracements as places where the current corrective wave could reverse. These levels are $19,993, $20,526 (coinciding with the other .618 retracement level shown on the Primary Chart at $20,521), $21,058, and $21,815. Supplementary Chart A: Fibonacci Retracements of September 13-19 decline Given the impact interest rates—and tightening financial conditions—have had on risk assets, it may be prudent to also watch interest rates closely. For this purpose, see the 10-year yield chart below. Supplementary Chart B: Current Uptrend in US 10-Year Yield (TNX) and Multi-Year High Reached The 10-year yield has shown no signs of slowing down yet. It continues to push higher, holding its short-term upward trendline from around the start of August 2022 until the present. The longer-term uptrend line has remained in effect for 2.5 years since March 2020. Note also that the 8-day EMA has held as support along with the shorter-term steep upward trendline. Until this line breaks, it is unlikely that crypto assets and equities can make substantial progress toward reversing their current bearish trend structures. For the curious, another chart showing the correlation coefficient between BTCUSD and TNX is shown in the final chart below. This shows that for most of 2022, the relationship between BTC and interest rates has been inverse. Many probably already have known this intuitively while reading news about increasing rates to combat inflation while simultaneously witnessing bear markets across most risk assets this year. This correlation coefficient has at times reached -.64 and -.68, showing fairly high levels of inverse correlation, which means that as yields push higher, BTC has fallen lower. This level has also dropped to lower levels of inverse correlation. Currently, the coefficient is at -.49. Supplementary Chart C: Correlation Coefficient for BTCUSD and TNX (Weekly Chart) ________________________________________ Please note that this technical-analysis viewpoint is short-term in nature . This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for this week. Also note that countertrend trading, e.g., trading a rally in a bear market, is tricky and challenging even for the most experienced traders. Countertrend trades are lower probability trades as well. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed. DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction. BITSTAMP:BTCUSD CME:BTC1! BINANCE:BTCUSDT
by SquishTrade
28
SECRETS the USDT.D chart can reveal - Crypto Bullish or Bearish?Hi Traders, Investors and Speculators 📈📉 Ev here. Been trading crypto since 2017 and later got into stocks. I have 3 board exams on financial markets and studied economics from a top tier university for a year. Daytime job - Math Teacher. 👩‍🏫 In today's video analysis, I share with you the SECRET of the USDT.D chart, that otherwise seems irrelevant in predicting the ENTIRE crypto market direction... right? Watch this video to find out what the USDT chart can reveal about the general trend of Bitcoin and altcoins / TOTAL cryptocurrency market cap. I also use one of my favorite technical indicators, the correlation coefficient. Now , you might wonder, why are market caps relevant? In general, the higher the market cap of a cryptocurrency, the more dominant it is considered to be in the market. For this reason, market cap is often regarded as the single most important indicator for ranking cryptocurrencies. The market cap of a cryptocurrency is determined by the current price multiplied by the circulating supply. The market cap of a cryptocurrency more or less reflects the popularity of a coin over a longer term and can reveal how much market participation there is in a specific asset. Large-cap cryptocurrencies are generally considered to be safer crypto investments. These are companies with a market cap of more than $10 billion. Investing in coins with large market capitalization is usually a conservative strategy. These coins are likely to be less volatile than other cryptocurrencies but still more volatile than traditional assets like stocks. Mid-cap cryptos (think top 20ish altcoins) are more volatile but also have a lot more growth potential than large-cap cryptocurrencies. Micro-cap cryptocurrencies are extremely volatile and considered a highly risky investment, even though they may sometimes have a lot of potential (short-term) growth. However, be aware that they may also crash, literally from one minute to the next. They are also popular for pump and dump schemes, and liquidity rug-pulls. _________________ 📢Follow us here on TradingView for daily updates and trade ideas on crypto , stocks and commodities 💎Hit like & Follow We thank you for your support ! CryptoCheck
CRYPTOCAP:USDT.DLong
by Crypto-Check-
41
FXI / Nasdaq Relative Strength & Correlation China's Large Cap ETF (FXI) is showing notable bullish Relative Strength (RS) compared to the Nasdaq (0.26 on the Daily RS, using a 50 period timeframe). The typical RS between these two fluctuates between -0.15 - 0.10. FXI also tends to have quite a strong correlation coefficient vs. NDX, but we're finally seeing that break down (0.24 on the Daily w/ a 50 length and trending down). Conservative swing traders want to see a breakout above ~$34 for longs, which would clear the downward sloping trendline that FXI has been respecting since early 2021. While there's still geopolitical risks associated with trading Chinese equities (e.g. tensions with Taiwan), China's recent dovish tilt is encouraging for swing-trading speculators. AMEX:FXI NASDAQ:NDX
AMEX:FXILong
by Michigandolf
11
SPX & DXY " The 2 Beasts " Decoding the correlation coefficient.How U.S. Stock Prices Correlate to the Value of the U.S. Dollar 2009-2021 1/ Only about 35% to 40% of the stock indexes' movements are associated with the movement of the U.S. dollar. 2/ Scenario # 1. Your portfolio is made up of shares that rely heavily on imported raw materials, energy or commodities to make money. A substantial portion of the manufacturing sector of the U.S. economy depends on imported raw materials to create finished goods. If the purchasing power of the U.S. dollar declines, it will cost manufacturers more than it did before to buy goods, which puts pressure on their profit margins and, ultimately, their bottom lines. 3/ Scenario # 2. Your portfolio is made up of companies that export U.S. manufactured goods around the world. Companies that rely substantially on foreign revenue and international exports stand to do very well if the U.S. dollar depreciates in value because they get more U.S. dollars when they convert from other world currencies. These companies sell products around the globe, and a low dollar just makes high-quality American goods more price-competitive in international markets. ------------------ DATA: Crossing above Zero line : ----------------- Bull move Top Bull move Top Bull move bull move Top Mid correction Bull move Mid pullback Bull move Bull move Bull move Bull move Bull move. Top ------------------ 10 Bull moves 4 Tops 2 Mid pullbacks ---------------- 62 % Bull moves. 38 % High Risk. **************End pullback Mid correction Mid correction Bull move Side ways Bull move End Correction Bull move Top Bull move Bull move ----------------- 5 Bull moves 2 Mid corrections 1 Top 2 End corrections -------------------- 70 % chance we SPX GOES UP ****** Crossing down Zero line: ------------- Mid crash Top Mid crash Top Mid pullback End pullback Top Top End pullback Side ways Top Top End pullback Top Mid Pullback end Pullback --------------- 7 Tops 4 Mid pullback/correction 4 End pullback/correction ------------------ 73 % HIGH RISK TOP/MID CORRRECTIONS/PULLBACKS *********************************** Extremes highs ------------------- End correction Bull move Bull move Top Top Top ----------------- 3 Tops 2 Bull moves 1 End correction ---------------------- 50% chance we SPX GOES DOWN. *******************************************
TVC:DXY
by samitrading
BTC: Digital gold trades like goldThe correlation coefficient between gold futures and Bitcoin started out negative for a few years, but after Feb '14 they began to move together. BTC and gold have now been in a five year cycle where the correlation will jump to +72, then drop to a higher low, then up to +72 again, over and over. It seems reasonable that the correlation could soon become stronger than +72 at this rate. It adds validity to the "Bitcoin is digital gold" idea. They are both being traded in an increasingly similar way.
COMEX:GC1!
by The_Arena_Trader
BITCOIN and CORRELATION, alternative trading strategies (CC)What Is the Correlation Coefficient / CC ? The correlation coefficient is a statistical measure of the strength of the relationship between the relative movements of two variables. The values range between -1.0 and 1.0. A calculated number greater than 1.0 or less than -1.0 means that there was an error in the correlation measurement. A correlation of -1.0 shows a perfect negative correlation, while a correlation of 1.0 shows a perfect positive correlation. A correlation of 0.0 shows no linear relationship between the movement of the two variables. Trade and Diversify with the CC indicator: The correlation between two variables is particularly helpful when investing in the financial markets. By adding a low or negatively correlated mutual fund to an existing portfolio, the investor gains diversification benefits. In other words, investors can use negatively-correlated assets or securities to hedge their portfolio and reduce market risk due to volatility or wild price fluctuations. Many investors hedge the price risk of a portfolio, which effectively reduces any capital gains or losses because they want the dividend income or yield from the stock or security. Bitcoin and CC: A high degree of correlation between the equity markets and Bitcoin has existed, particularly in the last few months. In other periods, gold and Bitcoin appear to move in tandem. However, the correlation that should be watched the most is the dollar since the global economy is based on the strength or weakness of our world reserve currency, the United States dollar. Weaker USD drove up Bitcoin prices in Q2, Q3 2020. The sudden impact of the global pandemic increased the demand for U.S. Dollars, surging heavily in March. This spike caused the other markets to tumble as the price of Bitcoin dropped by 50%, confirmed by the carts as the positive CC with NASDAQ and Gold and the negative correlation with the USDOLLAR. More interestingly is the fact that Bitcoin’s peak high is surrounded by the cycle low of the DXY index. A Biden win and the USDOLLAR The greenback is currently overvalued by 10% to 15% based on several reasons, according to Zach Pandl, co-head of global FX and EM strategy at Goldman Sachs. A drop on this scale would bring the dollar index to its lowest since late 2014. Furthermore a stimulus package and/or another lockdown will push the dollar even lower. We can use this information to plan a strategy for a correlation trade between BTC and other markets. Please hit like if you found this helpful and/or insightful, and share your thoughts! Thanks, EV Main sources - Investopedia, Cointelegraph, Business Insider
BITSTAMP:BTCUSD
by BlockTechEv
20
BTC been correlating with Gold more than SPX over past weeks!Just a quick thing to note. Presently the treat of government shutdown in the US and the looming election is creating uncertainty in the market, leading to mass liquidation back into USD -- as irrational as that may be considering the present debasement of the USD (and of other currencies around the world, including the Yuan, and the Pound, etc). See previous BTC analysis which considered the bearish case in an update just before the dump: Key thing to note, as posted in an update of the analysis above: "If 10400 USD VPVR level fails to hold, expecting price to drop to the white long-term resistance-turned-support level presently at 9600 USD to finally close the CME gap (yet again)."
BITSTAMP:BTCUSD
by cybernetwork
4
Update on GoldNot much has changed, If you missed the last decent entries on the 50/61% levels of the Fibonacci, I would suggest to be patient and wait.The current positions are only good for scalping in my honest opinion. As we know this formation can be broken either way, and its overdue for a decent pullback for OANDA:XAUUSD . We got as low as 1860s. That was an extremely important entry position for those trying to get a long position. Following the fundamentals closely as we approach election time, we can see gold prices pullback even lower than 1860s. Hopefully for those waiting to get in again at a decent entry we might see 1760s zone again. Refer to my previous analysis which goes in more detail.
OANDA:XAUUSD
by Cangaceiro
1
Update on Silver Will it break resistance? We are inside the the trendline channel (yellow line) we can see strong resistance and price rejection from previous attempts of breaking. I won't be surprised if we break downwards again at this resistance marked with red line and Pivot Standard. Last decent entries here once again were at 50/61% levels of the Fibonacci at around 23-24. My suggestion would be to wait for a better pullback position, as we are approaching elections and based on price correlation with gold (read my analysis to understand).
OANDA:XAGUSD
by Cangaceiro
1
USDCHF Inverted Cup&Handle check my previous ideasHi friends hit the like/follow button to motivate me to continue. Check my previous ideas to keep up to date. We went over USDJPY and EURUSD that have move similar, now USDCHF is the pair they’re opposite trend. Now this is not always 100% due to volatility and Fundamentals impact. We can observe the inverted cup and handle was respected, also we can see how the trend was opposite from EURUSD and USDJPY. We can expect further downtrend to support area. But before the handle in this case since it is inverted, can be expected to uptrend to Fibonacci levels before it pushes down. If it breaks further confirmations would be necessary to determine the next position, for now we can continue to see downtrend to support area. Be ready if the time trend bounces from support back to fibonacci levels. What are the strategies I use? A combination of strategies: Confluence; Pair Correlation; Naked Forex. The tools and indicators I used: SMAs;Pivot Standard;Fibonacci Retracement tool.
Short
by Cangaceiro
1