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Currency correlations

Have you ever noticed that some currency pairs move almost the same way as twins? Sometimes the couple A behaves just like the B, but mirrored.


Yes it is really happening and is not a coincidence and it's called cross correlation currencies. 

If the pair moves well and even in the same direction 100% of the time, we call it positive correlation.

Perfect positive correlation has the correlation coefficient +1



The second option of mirrored pairs that do the same thing, but each in a different direction at 100% of their time. This is called negative correlation.

Perfect negative correlation has correlation coefficient of -1



Now you know that we will work with concepts such as negative and positive correlations.
What couples correlate negatively and positively?

EUR/USD vs USD/CHF They have a correlation coefficient -1

And what does it actually mean in practice?

 
When the EUR / USD is in a downtrend, so you can be sure that the USD / CHF will be up-trend. 


In practice it is quite easy. We make a detailed analysis for EUR / USD. We conclude that want to enter into trade sales order SELL stop because the EUR / USD is in a downward trend and the correlation few glimpses we just scan the chart USD / CHF and without any major concern we enter the opposite position thus BUY stop. Now we can be almost 90% sure that both couples will have a profit, as needed. All this, of course, assuming that our analysis of the EUR / USD pair is correct and is located in a down-trend.

 

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