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Correlation Trading - How to Trade Forex With Little to No Risk!

FX:AUDJPY   Australian Dollar/Japanese Yen
Tonight we did a live stream on YouTube offering an in-depth explanation of correlation trading. You can watch the stream back in its entirety here https://www.youtube.com/watch?v=XOtqLSprYoI

Below will be a written explanation of correlation trading utilizing the AUDJPY             vs. NZDJPY             as the example:

Correlation trading is an amazing way to add diversification to your trading portfolio and in your trade plan. You can continue your trading plan and strategy but take advantage of correlation trading opportunities as they arise             to increase your ability to profit from the forex market. In correlation trading the objective is to find currency pairs that are highly correlated, meaning that when one pair moves in any given direction the other pair also moves in that same direction. A great example of this would be the AUDJPY             vs. the NZDJPY             . Over the past year the correlation between the two pairs has been very positive, 92% of the time over the past year the two pairs have been moving in sync with one another. This correlation can be confirmed by using the Oanda correlation chart:

Once you have confirmed that you are looking at two pairs that are highly correlated to one another, you will want to then look into the charts and compare the price action over the past year. TradingView makes this very convenient with the ability to overlay charts. When we overlay the NZDJPY             chart on the AUDJPY             chart (candlesticks=AUDJPY, bars=NZDJPY) we can clearly see the times of the year when the two pairs were moving very much in sync and the times where the correlation cracked a bit and the two pairs moved oddly in opposing directions.

It is during these times when the correlation cracks that provides us with the immensely profitable and essentially risk free trading opportunities. If you notice on the chart throughout the past year you will see highlighted in yellow boxes all of the times when the correlation has cracked and a gap has formed. We can look at these moments and estimate the average maximum gap in correlation and use this information to gauge when to take a correlation trade on this pair.

You will notice every time the correlation has cracked and a gap in price action has formed, price inevitably moved back in correlation narrowing and even closing the gap You will also notice if you look back at the widest portion of the gap from every time there was a crack in correlation that it has been roughly anywhere between 400-500 pips . If we look at the second to most recent gap in correlation that we have labeled on the chart you will notice that at its widest point the gap in price was roughly 600 pips; the high being at 85.500 and the low being at 80.700. If we were watching this occur as it was happening and we noticed the gap in correlation approaching 400 pips and then 500 pips and then 600 pips, forming the widest gap in correlation all year, we could then look to take a correlation trade between these pairs.

In this given example around 3/11/16 we would look to take equal positions of long NZDJPY             and short AUDJPY             banking on the fact that the gap in correlation should statistically, with 92% likelihood, narrow and potentially even close completely so that the two pairs are moving back in correlation with one another. You will see that if we did this we covered on 3/30/16 we would have netted ourselves a fruitful profit of 300 pips. Our short position in AUDJPY             would have been down about 20 pips or so but our long in NZDJPY             would have been up about 340 pips.

This profit came with little to no direction risk because as one position goes against you the other statistically should go in your favor and if you are not netting a profit at any given moment your loss should be simnifically reduced as compared to what it would be if you were only holding the losing position.
Comment: There is ALWAYS risk in trading Forex... If I could edit the title to take out the word "no" I would. The point is though that by taking advantage of correlation trading you can significantly minimize your directional risk and therefore subsequently minimize your overall risk in the market.
Hi. Link to video is missing. Thanks.
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Should be there now if you refresh but just incase here it is: https://www.youtube.com/watch?v=XOtqLSprYoI
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profitharvesters FeroxWealth
@FeroxWealth, Hello. Thanks for you valuable time and effort in helping us to understand this technique. I am unable to view you video, are you able to please assist me with this. Thanks in advance
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Link for Corrensee Correlation. Thanks
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FeroxWealth pyramids_Forex
It is in the video description.
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pyramids_Forex FeroxWealth
I cant find ant http://www.canad.com in the description !!
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FeroxWealth pyramids_Forex
try now should be in the description
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pyramids_Forex FeroxWealth
Thanks
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Can you please tell me how to connect two currency in the TV chart?
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FeroxWealth pyramids_Forex
at the top left next to the indicators button there should be something that says "add"
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Great recomendation! Will check this tehniqe.
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The video goes into much greater detail. Correlation trading is an amazing way to minimize your risk.
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video is not available...
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