Correlation, Connecting The Dots

Correlation between currency pairs is one technical area of trading I find particularly interesting. Ultimately everything is connected in some way but particular pairs are heavily weighted with or against other pairs. Getting familiar with some of them can come in very handy.

Its impossible to navigate every single correlation and often some pairs are positively weighted on a smaller time frame like the 1 hour chart for example so the two pairs may move a bit in the same direction. But often they can be opposite on longer time frames. Oanda, a popular broker, has provided a fantastic correlation tool for you to use to see how they stack up! I have this open pretty much daily and I do use it quite heavily. You must always trade what you see, not what you "want" to see but looking at one chart for too long can get you lost so looking at another pair that is heavily weighted across all time frames or at least on the daily and weekly can clear your uncertainty and give you a bit more of an edge. Its just another level of confluence to stack on top.

The correlation tool can be found here: https://www.oanda.com/forex-trading/analysis/currency-correlation

A good example would be looking at a position on AUDJPY. Using the map, you can see that some pairs are stronger and very much move in sync with this pair. If you were looking to get long and maybe see a nice double bottom and also noticed that AUDCHF is showing bullish pressure, this would be a nice level of confluence to add on top.

It can get a bit confusing so don't rely on it too much but its definitely useful and can help bring a little clarity.

 This is the "heatmap" setting. They offer a few visibility options and you can turn on/off certain categories like majors, exotics, metals and CFDs.

This is the "heatmap" setting. They offer a few visibility options and you can turn on/off certain categories like majors, exotics, metals and CFDs.