Learn the techniques on how to use market correlation. This will give you a hidden edge over your fellow traders in the market. This is critical for those who are looking for a strong understanding of market direction.
Understanding Market Correlation
When the price of two or more different pairs moves together we are talking about market correlation. Note that in forex the price of different pairs can move up on both, but that it can also be reversed. This means that when one moves up, the other consistently moves down. We talk about market correlation in both cases.
Correlations are dynamic, they will always change over time. They can actually vary very much over different time periods. And even the correlation on for instance the 4h chart may vary a lot from the correlation on the 15min or weekly chart.
Market Correlation doesn't Matter If Your Technical Analysis Is Not Up To Par
Market Correlation doesn't move the forex markets. A confluence of other factors move the market - most notably central bank policy. So if you see correlation among a few pairs or a whole currency group, you have a great tool to determine the direction. With this in mind you can use your technical analysis skills to assess which pair is the best to trade in that direction. However, if you lack the technical analysis skills, then knowing market direction is not very useful at all. For instance, you can be aware of the direction, but if you don't read the market well enough to determine the timing and stops of your trade, there's a good chance you will get stopped out. And getting stopped out and later seeing the trade move in the direction you predicted is a major painful thing to see for any trader.
So as always with trading tools, make sure your read of the story is good and before that; get your basics cemented.
Watch the video at the top for the full lesson so you can continue to enhance your skills and be better everyday.
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Editors’ Picks
EUR/USD stabilizes near 1.1700 ahead of US data
EUR/USD holds steady at around 1.1700 on Thursday after posting modest daily losses on Wednesday. Improving market mood on easing EU-US trade densions helps the pair keep its footing as market focus shifts to mid-tier data releases from the US.
GBP/USD recovers above 1.3400 as mood improves
Following a two-day rally, GBP/USD lost its traction and closed in negative territory on Wednesday after mixed UK inflation data. The pair stays relatively quiet on Thursday and fluctuates in a tight channel above 1.3400 ahead of PCE inflation and Jobless Claims data from the US.
USD/JPY bounces up and approaches 159.00 with all eyes on the BoJ
The US Dollar is trading higher across the board on Thursday, favoured by the de-escalation of the EU-US tensions. A brighter market sentiment halted the “Sell America” trade, pushing the USD/JPY to test one-week highs, at 158.87 on Thursday, after bouncing from the mid-range of the 157.00s earlier this week.
Editors’ Picks
EUR/USD stabilizes near 1.1700 ahead of US data
EUR/USD holds steady at around 1.1700 on Thursday after posting modest daily losses on Wednesday. Improving market mood on easing EU-US trade densions helps the pair keep its footing as market focus shifts to mid-tier data releases from the US.
GBP/USD recovers above 1.3400 as mood improves
Following a two-day rally, GBP/USD lost its traction and closed in negative territory on Wednesday after mixed UK inflation data. The pair stays relatively quiet on Thursday and fluctuates in a tight channel above 1.3400 ahead of PCE inflation and Jobless Claims data from the US.
Gold holds above $4,800 after Trump's U-turn on Greenland
Gold stabilizes above $4,800 early Thursday following a sharp decline seen during the Asian session. The global risk sentiment gets a strong boost in reaction to US President Donald Trump's U-turn on Greenland and easing geopolitical tensions, capping XAU/USD's upside.
Top Crypto Gainers: Canton, MYX Finance, Pump.fun rise as the market steadies
Canton, MYX Finance, and Pump.fun are leading the recovery over the last 24 hours as the broader cryptocurrency market takes a breather after sharp losses. Technically, the recovering altcoins are closing toward key resistances as selling pressure eases.
Trump walks back NATO tariffs, signals de-escalation
What began as a sharp escalation risk quickly turned into a de-escalation signal. Earlier this week, markets briefly priced in escalation risk after Donald J. Trump proposed a 10% tariff hike on eight NATO nations amid the Greenland dispute.
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