How To Choose Best Pairs To Trade Based On Correlation 2


Salve a tutti,

in this short post I want to describe you hot to choose best pairs to trade based on the correlations between currencies.

In one of my previous posts I divided currencies in 3 groups based on the correlation between them.

The first group is made of AUD, EUR, GBP and NZD. The second group by USD and JPY. The third one is made of CAD and CHF.

I mainly trade the crosses between the first and the second group as they tend to be inversely correlated. That means that when the first one is bullish the second is bearish and vice versa.

So my preferred currencies are:

  • AUD/USD
  • AUD/JPY
  • EUR/USD
  • EUR/JPY
  • GBP/USD
  • GBP/JPY
  • NZD/USD
  • NZD/JPY

In particular the AUD and NZD are absolutely the most reliable to trade. My Australian friends will be happy to hear that 😀 AUD/USD and NZD/USD are absolutely the best pairs to trade with PotenzaFX.

What I absolutely don’t do is trade the crosses coming from currencies within the SAME group.

So I won’t ever trade (for group 1):

  • AUD/NZD
  • EUR/AUD
  • EUR/GBP
  • EUR/NZD
  • GBP/AUD
  • GBP/NZD

And for Group 2:

  • USD/JPY

I know that USD/JPY is very popular but I very rarely trade it. Only when the two currencies “decorrelate” but just on the fact that they’ll come back to re-correlate soon.

For now let’s skip Group 3.

So a quick suggestion for those that just started trading with the PotenzaFX:

focus on the above 8 pairs (you can add USDCHF if you want :D) But don’t trade the following 7 coming from the cross of currencies within the same group. That will take you away from unreliable signals.

Those are as usual general rules. Everything changes. And they came from an analysis on the daily timeframe. If you want to trade on very low timeframes you don’t necesessarly need to follow me but if you do you will probably have better performances as well.

Don’t forget to check the correlation. At least make sure that it is lowering before entering a trade.

In the meanwhile we are already getting emails from people that is doing very very well after just one day of trade with the PotenzaFX. Some did use it during the NFP to catch some very good profit from it.

Tomorrow I’ll post an example trade taken Friday close to NFP 😉

Have a good Sunday,

Andrea

P.S. Don’t forget that Thursday Dec 8th we’ll release the basket trading indicator 😉


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2 thoughts on “How To Choose Best Pairs To Trade Based On Correlation

  • Todd

    Andrea
    What time Eastern Standerd time USA do you use for end of day?
    Does it make a big difference?
    My brocker is at 8:00 PM. Should I look at it and use 4:00 or 5:00PM?
    Great stuff ! I have a feeling things are going to start looking alot better for me with theese great new tools.
    Pip On
    Todd

    • Andrea Post author

      I use the broker time. And I use brokers with GMT and GMT+3 time. Not a huge difference if you have a different end of the day as we are dealing with hundreds of pips :)
      Thanks a lot for your compliments. Yes the main quality of the PotenzaFX is that it makes easier to READ the market. Once you know where you’ve been and where you are it’s easier to know where you are going 😀