If you are looking to become a successful trader then you may want to consider trading correlated pairs. This style of trading is both a method of trading as well a system of finding entries and making very profitable exits. To make the whole thing easier to understand, let's first explain "correlated pairs."
There are some forex pairs that, for one reason or another, have a tenancy to move together. As an example, the Euro and the Pound. For somewhat obvious reasons, if the British Pound is getting stronger, that typically means good things for the eurozone in general and thus a strengthening Euro as well.
Currencies that are likely to be correlated are very often found in "trading blocks" such as the Euro and the Pound or the Australian Dollar and the New Zealand Dollar.
In fact, if you look at it historically, the most correlated pairs... or the pairs the most likely to move together, are EURUSD and GBPUSD. Right behind that are EURJPY and GBPJPY.
Now, if you look at it. The US Dollar and the Japanese Yen are also highly correlated as a result of their status as "safe haven" currencies thanks to the very large and developed economies. That means that EURJPY and GBPJPY are very likely to move with EURUSD and GBPUSD.
Take a look at what is being constructed. In all four cases the European currencies are on the "right" side of the currency cross and the "safe haven" currencies are on the "left" side of the currency cross.
That means that if you take a look at charts on the 4 hour or longer time frames, you should see these four pairs showing very similar patterns and directionality... and in fact that is the case. Those four pairs move together nearly 88% of the time.
Relatively safe trades can be found simply by finding times when those four are moving together and trading in the direction of that prevailing trend.
Of course that leads to a discussion on finding a strong prevailing trend during a time when you can make profits relatively quickly and easily.
So, lets talk about finding a basic entry. Finding an entry involves the use of two time frames. The first time frame used is the 1H... and for that you will want to look at Heiken Ashi candles. So, open chart windows for all four pairs, and add that indicator.
There are some forex pairs that, for one reason or another, have a tenancy to move together. As an example, the Euro and the Pound. For somewhat obvious reasons, if the British Pound is getting stronger, that typically means good things for the eurozone in general and thus a strengthening Euro as well.
Currencies that are likely to be correlated are very often found in "trading blocks" such as the Euro and the Pound or the Australian Dollar and the New Zealand Dollar.
In fact, if you look at it historically, the most correlated pairs... or the pairs the most likely to move together, are EURUSD and GBPUSD. Right behind that are EURJPY and GBPJPY.
Now, if you look at it. The US Dollar and the Japanese Yen are also highly correlated as a result of their status as "safe haven" currencies thanks to the very large and developed economies. That means that EURJPY and GBPJPY are very likely to move with EURUSD and GBPUSD.
Take a look at what is being constructed. In all four cases the European currencies are on the "right" side of the currency cross and the "safe haven" currencies are on the "left" side of the currency cross.
That means that if you take a look at charts on the 4 hour or longer time frames, you should see these four pairs showing very similar patterns and directionality... and in fact that is the case. Those four pairs move together nearly 88% of the time.
Relatively safe trades can be found simply by finding times when those four are moving together and trading in the direction of that prevailing trend.
Of course that leads to a discussion on finding a strong prevailing trend during a time when you can make profits relatively quickly and easily.
So, lets talk about finding a basic entry. Finding an entry involves the use of two time frames. The first time frame used is the 1H... and for that you will want to look at Heiken Ashi candles. So, open chart windows for all four pairs, and add that indicator.
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