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BASIC CONCEPT IN CORRELATION
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The correlation coefficient factor always
ranges between -1 and +1.
A correlation of +1 implies
that the two currency pairs will move
in the same direction 100% of the time.
A correlation of -1 implies
the two currency pairs will move
in the opposite direction 100% of the time
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entering trade on positive correlation rules:
we check the correlation factor value in daily/hourly time frame for the first
pair against second pair
if correlation value of the first pair is above +0.80, then it is
treated as positive correlation, same time check the
indicator2.ex4 for checking valid buy/valid sell signals
when buy arrow comes in indicator2.ex4, check candle high of the arrow
add 1 pip with that value, if it comes then it is treated as valid buy
when sell arrow comes in indicator2.ex4, check candle low value,
less 1 pip from that value, if it trades and below, it is treated as
valid sell.
since correlation value is +0.80 and above, we treat as same
directiont rades
once indicator2.ex4 gives buy,we buy equal qty in first pair
and in second pair, with same direction
we can put target and stoploss as optional, or leave for signal to signal
example : target : 30 pip, sl as reverse signal in first pair for both first and second pairs
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entering trade in negative correlation concept :
if correlation value of the first pair is below -0.80, against the
second pair, it is considered as negative correlation sametime check the
indicator2.ex4 for checking valid buy/valid sell signals
when buy arrow comes in indicator2.ex4, check candle high of the arrow
add 1 pip with that value, if it comes then it is treated as valid buy
when sell arrow comes in indicator2.ex4, check candle low value,
less 1 pip from that value, if it trades and below, it is treated as
valid sell.
since correlation value is below -0.80 we treat as opposite
direction trades
once indicator2.ex4 gives valid buy,we buy with input qty in first pair
and sell same qty in second pair, as opposite direction
IF indicator2.ex4 gives valid buy we buy first pair and sell second pair
IF indicator2.ex4 gives valid sell we sell first pair and buy second pair
we can put target and stoploss as optional, or leave for signal to signal
example : target : 30 pip, sl as reverse signal in first pair for both first and second pairs
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INPUT VALUES FOR THE E.A. AS FOLLOWS
INPUT QTY : 0.10
ENTER FIRST PAIR NAME :
ENTER SECOND PAIR NAME :
STOPLOSS : 0 MEANS SIGNAL TO SIGNAL, OR WE PUT ANY VALUE AS COMBINED STOPLOSS
TARGRT PIP : 30 PIP
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re entry :
once target hit, check correlation value again, and repeat process
or
if reverse trade generated by indicator2.ex4, check daily/hourly correlation
value, and repeat process
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http://www.investopedia.com/articles/forex/05/051905.asp
http://fxtrade.oanda.com/analysis/currency-correlation
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