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WHAT ARE CURRENCY CORRELATIONS AND HOW DO TRADERS USE THEM?

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WHAT ARE CURRENCY CORRELATIONS AND HOW DO TRADERS USE THEM?

When trading the FX market, one of the most important facts to remember is that the price action of each currency pair is not mutually exclusive. In many cases, foreign economic conditions, interest rates, and price changes affect much more than just a single pairing. Everything is interrelated in the forex market to some extent, and knowing the direction and how strong this relationship is can be used to develop effective trading strategies and has the potential to be a great trading tool. The bottom line is that unless you only want to trade one currency pair at a time, it is extremely important to take into account how different currency pairs move relative to one another. To do this, we can use correlation analysis.
Correlations are calculations based on pricing data, and these numbers can help gauge the relationships that exist between different currency pairs. The information that the numbers give us can be a good aid for a…