Currency Pairs and Correlation
- Author Bt Stew
- Published September 14, 2021
- Word count 531
Currency pairs and correlation
Currencies are mainly based on the three-letter code. There are at least one hundred and seventy different currencies, and the USD (U.S. Dollars) has the most majority in Forex trading. Next will be the European Union, Japanese Yen, Canadian Dollar, British Pound, and New Zealand Dollar.
Forex trading is based on two currencies being exchanged. So, the combination of two different currencies works as a trading part. EUR (European Union)/USD (U.S. Dollar) is one of the major combinations of currencies.
If you consider EUR/USD, the EUR is the base currency, and the USD is the quote currency. Therefore, the exchange rate depends on how much of the quote currency is needed to purchase one unit of the base currency. For example, if the exchange rate is 0.57, you need 0.57 USD to buy 1 EUR. Therefore, if the exchange value is high, the quote currency value has fallen, and if the exchange rate is low, the quote currency value has risen.
The correlation is the relation between the two currencies. The currency pair has to be associated with Forex trading, and the correlation coefficient defines this relationship. Obviously, the currencies are paired in Forex, so this represents how the exchange rate will perform.
The correlation coefficient is between -1 to +1. If the correlation is positive, the currencies are moving together, and if it's negative, they are moving in the opposite direction. If the correlation coefficient is zero, then the currency pair is at an arbitrary point.
To calculate the correlation between currency pairs, you can go for Microsoft spreadsheets. This is the best way to develop your strategies. First, choose a currency pair and put them on your spreadsheet. Then fill the columns with their daily prices. The prices are readily available on the internet. And with the CORREL in a spreadsheet, you will get the correlation between the pair. You can update your data every other day.
Correlation changes quickly. For example, suppose in a particular month, EUR/USD correlation is 0.74, and in three months, the correlation is 0.63. This means that the correlation was weaker in three months, but the correlation is still positive.
The correlation between the currency pairs is never stable, and the global economic factors are directly connected to them. So if the correlation is strong today, it doesn't mean it'll remain firm in the long run. And this is why a period of six months is suggested in defining correlation.
Trading with the pairs:
A trader can sell the pair with a positive correlation and buy the couple with a negative correlation. The main thing is to purchase a pair that has a higher correlation, thus ensuring that they move together. The long history of high correlation will result in profit.
You can always control the loss with stop-loss. But it is not entirely possible to gain profit with the trade even if the pair moves upwards. So with any correlation strategy, the position is the key to minimize loss.
To sum up...
The currency pairs are the primary source of Forex trade, and to get a minimum profit, first, you need to understand the relation between the currencies.
In recent years I took an interest in trading currency and decided to add it as another source of income. After the learning curve, a little over two years, I was able to become a successful trader. Trading is now my #1 source of income. My goal is to lessen the mistakes made by newbies through reliable Forex Signals, Live Forex Trading, and online courses. Learn more about the Premier Forex League at https://forexsignalroom.com/technical-forex-signals/Article source: https://articlebiz.com
There are no posted comments.
- What do investors expect from a startup?
- 7 Money Management Tips For Millenials
- Top 5 Live Forex Trading Rooms
- In 2021, Anyone Can Make Money By Playing Video Games!
- The Averaging strategy in the share market
- The Superior OTC Markets Investor Relations Firm
- Introduction to Forex Trading
- Is Smartford really worth it?
- The Stock Market Investing Secrets of Peter Lynch, one of the World’s Greatest Stock Market Investors
- The Stock Market Investing Secrets of John Templeton, one of the World’s Greatest Stock Market Investors
- Is it a good idea to invest in Amazon stock?
- Proven Forex Strategies
- Trading using the 80/20 rule
- How To Get Rid Off From Forex Trading Scams Or Frauds in 2021
- What to Buy From Turkey Blog Series 1
- Red Flags - What kinds of brokers should you avoid?
- What you should know about uBanker in Nigeria
- What If Everyone Participated on the Ownership Side of the US Economy?
- THINGS TO CONSIDER WHEN LOOKING FOR AN ONLINE FOREX TRADING COURSE
- What does Forex regulation actually do?
- Why Binomo Download In Thailand In A Time Of Crisis
- Getting The Right Training In Forex Trading
- Decentralized Principles of ABBC's DAO System
- Is private equity right for your company?
- 5 questions by beginner crypto traders answered by Binomo platform
- Beware - Bitcoin / Forex / Cryptocurrency Millionaires Fraud - "Vanessa Parker"
- How to Buy Bitcoin in Canada
- Is Dst A Good Investment?
- What you should know before finding cash buyer for your property?