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Correlation in forex

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@yokoyi - 1 month ago - Forex Education

Hi traders, I want us to discuss correlation in forex trading because it is a subject most beginners are unaware of. Please feel free to attach screenshots as you make your contribution.

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@yokoyi - 1 month ago

There are some forex pairs that move opposite to others and we call this "negative correlation".

An example of negative correlation is the relationship between EUR/USD and USD/JPY as shown on this 5-minute multi-chart from cTrader.

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@yokoyi - 1 month ago
Quoted - yokoyi

There are some forex pairs that move opposite to others and we call this "negative correlation".

An example of negative correlation is the relationship between EUR/USD and USD/JPY as shown on this 5-minute multi-chart from cTrader.

Beware of Counterproductivity

Now this is my opinion: it would be counterproductive to open simultaneous trades (in the same direction) on two negatively correlated pairs, because your work done will be zero at the end.

For instance if you open two buy trades on EUR/USD and USD/JPY you will end up with zero because even of you win one, you will likely lose the other.

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@yokoyi - 1 month ago

Good risk management for me is trading different asset classes instead of just trading different instruments. What I mean is in a day I can trade EUR/USD, then trade NAS100, then trade NATURAL GAS. These are entirely different asset classes and are barely correlated

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@yokoyi - 1 month ago

It really is poor risk management to trade EUR/USD, GBP/USD, USD/JPY, all in one day. You may just be running around in circles and achieve nothing because of the correlation of these pairs.

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@paul_petit - 1 month ago

I never thought of it this way, and it actually makes sense. Trade the same direction on two negatively correlated pairs and end up with zero because if you win one you lose the other.

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