Yesterday I posted about the Forex Correlation Cheat Sheets which Jason Fielder has published as a gift to all Forex traders. You can still Download the cheat sheets here.
Today I want discuss a term which is part of the entire Forex Correlation concept which so many people are talking about these days: Correlation Breakdowns.
As you may already know, if you went through the ‘cheat sheets’, some currency pairs are correlated to each other. There is positive correlation in which currency pairs tend to move in the same direction and negative correlation in which they move in opposite ones. But correlation is such a powerful statistical force that this happens nearly all the time.
However, there are cases in which there is a correlation breakdown: a situation when two currency pairs don’t behave according to the correlation between them. For instance, the EUR/USD and the GBP/USD are positively correlated so they’re supposed to move in the same direction. If the EUR/USD goes up and the GBP/USD down, this is a correlation breakdown and it’s something you need to know about.
The reason is that sooner rather than later, correlation is going to reassert itself so you will have a correction in the market which will bring things back to their natural order.
This means that you, as a trader, have a high-probability trade ahead of you in which you can make money off this correction. Because correlation is such a powerful statistical force, this is as high probability as it can get in Forex.
This is why you need to know about correlation and the breakdowns that happen in the market. It can help you to make more money. Simple as that.
So, take a moment and download the Forex correlation cheat sheets and see how you can use them and the 3 trading strategies they reveal to improve your trading results.
