Binary option CHL: мая 2018

четверг, 31 мая 2018 г.

Etf option trading hours

ETF Options Product Specifications.

Description.

Exchange traded fund options are standardized put and call options on underlying exchange traded funds (ETFs). ETFs are securities representing ownership in portfolios of assets designed with an objective to generally correspond to the price and yield performance of individual indexes.

Unit of Trade.

Each standard contract represents 100 shares of the underlying ETF. Corporate actions, such as rights offerings, stock dividends, and mergers, can result in adjusted contracts representing something other than 100 shares of stock.

Premium Quotations.

Stated in points. One point equals $100. Most ETF premiums are quoted in $.01 increments for options under $3 and $.05 increments for options over $3.

Strike Price Intervals.

In general, ETF strikes will be listed in $1 increments. However, different exchange programs allow for strike-interval listing beyond the standard method. Some short-term options on ETFs will list strikes in $.50 intervals.

Exercise Style.

American-style. Options may be exercised on any business day up to and including the expiration date.

Exercise Settlement Time.

Exercise notices tendered on any business day will result in delivery of the underlying ETF on the second (T+2) business day following exercise.

Expiration Months.

ETFs will list two consecutive near-term expiration months plus two successive months from the January, February or March cycle. LEAPS® expirations may also be added. However, different exchange programs allow for expiration-month listing beyond the standard method.

Expiration Dates.

Monthly options expire on the third Friday of the expiration month. Many products also list weekly options that expire on Fridays. If an exchange holiday occurs on that Friday, weekly options will expire on the preceding Thursday.

Position Limits.

Limits vary according to the number of outstanding share and trading volume. Some ETF position limits may be higher than 250,000 contracts. Customer hedge exemptions are available. Investors may check Position Limit reports from OCC's website for more information.

Minimum Customer Margin.

Purchases of puts or calls with nine months or less until expiration must be paid for in full. Writers of uncovered puts or calls must deposit / maintain 100% of the option proceeds* plus 20% of the aggregate contract value (current equity price x $100) minus the amount by which the option is out-of-the-money, if any, subject to a minimum for calls of option proceeds* plus 10% of the aggregate contract value and a minimum for puts of option proceeds* plus 10% of the aggregate exercise price amount. Margin requirements for some broad-based ETFs may vary.

(*For calculating maintenance margin, use the option's current market value instead of the option proceeds.)

Trading Hours.

ETF options will trade the same hours as the underlying ETF. For most ETFs, this is 9:30 a. m. to 4:00 p. m. ET. For certain broad-based ETFs, 9:30 a. m. to 4:15 p. m. ET. Expiring weekly options on some broad-based ETF products may cease trading at 4 p. m. ET, or 15 minutes before the non-expiring options on that same class cease trading.

This web site discusses exchange-traded options issued by The Options Clearing Corporation. No statement in this web site is to be construed as a recommendation to purchase or sell a security, or to provide investment advice. Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies of this document may be obtained from your broker, from any exchange on which options are traded or by contacting The Options Clearing Corporation, One North Wacker Dr., Suite 500, Chicago, IL 60606 (investorservicestheocc).

Options Trading Hours.

Options only trade during regular market hours. You cannot place orders for options for the pre-market or after-hours trading.

Options on stocks trade from 9:30 a. m. to 4 p. m. ET.

The close of trading for options on ETFs coincides with the closing of the underlying security.

Last Trading DayвЂ“ Trading in options on ETFs will ordinarily cease at the close on the business day (usually a Friday) preceding the option expiration date.

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Not a recommendation. Any specific securities, or types of securities, used as examples are for demonstration purposes only. None of the information provided should be considered a recommendation or solicitation to invest in, or liquidate, a particular security or type of security or account.

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Scottrade, Inc. and Scottrade Investment Management, Inc. are separate entities but are affiliated subsidiaries of TD Ameritrade Holding Corporation. Scottrade Bank has merged into TD Bank, N. A. As a result of the merger, Scottrade Bank has become a trade name of TD Bank, N. A. or its affiliates. Deposit products and services offered by TD Bank, N. A. and TD Bank USA, N. A., Members FDIC. TD Bank, N. A. and TD Bank USA, N. A. and TD Ameritrade are affiliated through their parent companies.

Brokerage products and services offered by Scottrade, Inc. - Member FINRA and SIPC.

Brokerage products are not insured by the FDIC вЂ” are not deposits or other obligations of the Bank and are not guaranteed by the Bank вЂ” are subject to investment risks, including possible loss of the principal invested.

All investing involves risk. The value of your investment may fluctuate over time, and you may gain or lose money.

Online market and limit stock trades are just $6.95 for stocks priced $1 and above. Additional charges may apply for stocks priced under $1, mutual fund and option transactions. Detailed information on our fees can be found in the Explanation of Fees (PDF).

Scottrade does not charge setup, inactivity or annual maintenance fees. Applicable transaction fees still apply.

Scottrade does not provide tax advice. The material provided is for informational purposes only. Please consult your tax or legal advisor for questions concerning your personal tax or financial situation.

Investors should consider the investment objectives, charges, expense, and unique risk profile of an exchange-traded fund (ETF) before investing. A prospectus contains this and other information about the fund and may be obtained online or by contacting Scottrade. The prospectus should be read carefully before investing.

Leveraged and inverse ETFs may not be suitable for all investors and may increase exposure to volatility through the use of leverage, short sales of securities, derivatives and other complex investment strategies. These fundsвЂ™ performance will likely be significantly different than their benchmark over periods of more than one day, and their performance over time may in fact trend opposite of their benchmark. Investors should monitor these holdings, consistent with their strategies, as frequently as daily.

Investors should consider the investment objectives, risks, charges and expenses of a mutual fund before investing. A prospectus contains this and other information about the fund and may be obtained online or by contacting Scottrade. The prospectus should be read carefully before investing. No-transaction-fee (NTF) funds are subject to the terms and conditions of the NTF funds program. Scottrade is compensated by the funds participating in the NTF program through recordkeeping, shareholder or SEC 12b-1 fees.

Margin trading involves interest charges and risks, including the potential to lose more than deposited or the need to deposit additional collateral in a falling market. The Margin Disclosure Statement and Agreement (PDF) is available for download, or it is available at one of our branch offices. It contains information on our lending policies, interest charges, and the risks associated with margin accounts.

Market volatility, volume and system availability may impact account access and trade execution.

Hyperlinks to third-party websites contain information that may be of interest or use to the reader. Third-party websites, research and tools are from sources deemed reliable. Scottrade does not guarantee accuracy or completeness of the information and makes no assurances with respect to results to be obtained from their use.

Tip 7 - Trading ETF Options.

Exchange-Traded Funds , or ETFs , are index funds that trade just like stocks on major stock exchanges. All the major stock indexes have ETFs based on them, including: Dow Jones Industrial Average (DIA), Standard & Poor's 500 Index (SPX), and Nasdaq 100 Composite (QQQQ).

In addition, just about every major industry has an ETF for investors who wish to select an entire industry rather than individual stocks.

ETFs differ fundamentally from traditional mutual funds, which do not trade during the normal trading hours of the day. Traditional mutual funds take orders during Wall Street trading hours, but the transactions actually occur at the close of the market. The price they receive is the sum of the closing day prices of all the stocks contained in the fund. Not so for ETFs, which trade instantaneously all day long (just like ordinary stock).

Since ETFs trade all day, options are available on them. These options provide interesting opportunities for certain strategies, including what I call the 10K Strategy, which is the major strategy offered by Terry’s Tips.

For the most part, at Terry’s Tips , we use broad-based ETFs as underlyings (SPY, DIA) for our option portfolios because they do not fluctuate wildly like individual stocks often do (our strategy works best when the underlying stays flat or moves only slightly in either direction).

We have had good luck with one ETF that is not broad-based, but made up of 84 companies in the banking and financial services area (XLF).

The 15 most important components of the Financial SPDR (XLF) and their weights are:

1 JPMorgan Chase & Co. (JPM) 11.80%

2 Bank of America Corp. (BAC) 8.90%

3 Wells Fargo & Co. (WFC) 8.60%

4 Citigroup Inc.(C) 5.60%

5 U. S. Bancorp (USB) 4.20%

6 Goldman Sachs Group Inc. (GS) 3.10%

7 Bank of New York Mellon Corp. (BK) 2.90%

8 American Express Co. (AXP) 2.60%

9 MetLife Inc. (MET) 2.20%

10 Merrill Lynch & Co. Inc. (MER) 2.20%

11 Travelers Cos. Inc. (TRV) 2.00%

12 PNC Financial Services Group Inc. (PNC) 1.90%

13 AFLAC Inc. (AFL) 1.80%

14 CME Group Inc. (CME) 1.60%

15 Morgan Stanley (MS) 1.60%

A hedged strategy: The options strategy I use with XLF is a hedged strategy. In many respects, this strategy involves taking less risk than if I had just purchased XLF stock. Half the options are “long”, meaning they benefit when XLF moves in one particular direction, while half are “short”, meaning that they benefit if XLF moves in the other direction. No matter which way XLF moves, half the options benefit from the change in stock price.

XLF options can be better than XLF stock. I must admit that I am an options guy, not a stock guy. No matter how much I like XLF (and I do), I know that I can make a whole lot more with the options than I ever can with the stock. And I can do it with a strategy that is “hedged”. I can make money with XLF even if the stock does not go up. Usually, I can even make money when it goes down, (just as long as it doesn’t go down too much, too fast).

If you trade actively in options, and particularly if you are hedged (meaning that you are putting on many different positions rather than speculating with the simple purchase of puts or calls), it is important to look at the options market for the underlying security. Option markets for individual companies, except for a very few extremely active stocks, often have large spreads between the bid and asked price. In many cases, a single market maker sets the prices, and it is difficult to get good executions when you trade.

This means that every time you buy an option, you pay more than you would if the options were more actively traded, and when you sell, you receive less than you would in an active options market. The options market for XLF is liquid. Bid-asked spreads are small, and you can successfully execute spread orders and count on getting decent prices regardless of whether you are buying or selling.

Why is XLF better than trading individual companies? It has nothing to do with the company. Rather, it has to do with the price behavior of most individual companies. The 10K Strategy does best when the stock does not gyrate wildly. At certain times, most individual companies are subject to sudden wide swings in their stock prices. Earnings are announced, and the company either exceeds (or fails to meet) expected results, and the stock moves accordingly. An analyst upgrades (or downgrades) the stock unexpectedly, and the stock makes a big move. Sudden price changes in the stock can result in losses when using the 10K Strategy , so we prefer to trade on a basket of stocks (like XLF) rather than an individual company. That way, if one company has a big swing in stock price, the effect on the total basket of stocks is usually minimal. (If the companies are all in the same industry, sometimes one company’s gain is another’s loss, so the net effect on the basket of stocks is zero).

I call my system the 10K Strategy . It is somewhere between a boring buy-and-hold strategy and day-trading. It is not a marathon – you do not have to wait forever to see results. Neither is it a sprint, dependent on short-term increases in the price of the stock. Like any race, it takes a little effort to execute. But the extraordinary profit potential makes it all worth while, at least to my way of thinking.

A Simple Options Strategy: The 10K Strategy is based on the simple fact that all options become less valuable every day (if the stock stays flat), but short-term options go down in value (decay) at a faster rate than long-term options. I purchase slower-decaying long-term options and use them as collateral to sell faster-decaying short-term options to someone else. If the stock stays flat, I always win. Guaranteed!

But as we know, all stocks do not stay flat. Some good stocks, like XLF, actually go up much of the time. Having a good feeling about a stock (and being right) makes the 10K Strategy even more profitable than just enjoying the option decay advantage. If the stock goes up, I can make more with the 10K Strategy than I ever could with the stock alone.

If the 10K Strategy is so simple, why doesn’t everybody follow it? First of all, only Terry’s Tips Insiders know about it. That’s a pretty small, but growing, universe. Second, it really isn’t as simple as the basic underlying concept makes it seem. The strategy consists of calendar spreads at several different strike prices (both above and below the stock price), with differing numbers of spreads at different strikes (depending on your personal risk tolerance), often involves puts rather than calls (even if you are bullish on the stock), and is governed by a strict set of Trading Rules that determine when adjustments need to be made.

Does the 10K Strategy make money all the time? I’m afraid that nothing could be quite that good. But it is close. In March 2009, I set up the XLF portfolio using the 10K Strategy (we call it the Marco Polo portfolio). This portfolio was set up in an actual brokerage account all by itself, and the positions (and every trade) updated each week for Terry’s Tips Insiders .

In the first 7 months, the portfolio gained 35% after all commissions (60% annualized) in spite of some extreme mid-month volatility. Several times, the stock fluctuated by over 30% in a single month, something that our strategy has the most trouble handling. To check how the portfolio has performed since that time, go to our Track Record page.

It all sounds too complicated – can you manage the 10K Strategy for me? Unfortunately, I can’t manage your money. I publish an options newsletter, and am not a licensed investment advisor. But through a mechanism called Auto-Trade, the best of all brokerage firms (in my opinion, and also Barron’s), thinkorswim, Inc. by TD Ameritrade, will execute my recommendations in your account for you.

How Much Does It Cost to Learn All About the 10K Strategy ? The White Paper costs less than a meal for two at a decent restaurant. It gives you all the information you will need to execute the 10K Strategy, and set up, and maintain, a portfolio that matches the degree of risk that you are comfortable taking. Complete Trading Rules for every risk level portfolio are included as well.

And there is more. First, you will receive a free Stock Options Tutorial which will acquaint you with the basics of option trading, including a simple explanation of the often-intimidating “Greeks.” Second, you will receive a free two-month subscription to our Insiders Newsletter, where you can watch our actual portfolios unfold each week (and receive Trading Alerts whenever a change is made in a portfolio). If you wish, you can mirror one or more of these portfolios in your own account, or sign up for Auto-Trade with thinkorswim , Inc. by TD Ameritrade and have the trades made for you.

And there is still more, like a list of 20 “Lazy Way” companies which allow you to make two trades at the beginning, and do nothing more for two full years. At the end of this period, you will have earned a minimum 100% on your investment, mathematically guaranteed, if the stock stays flat or goes up by any amount. In most cases, it can even fall by 5% and you make at least 100%, and it can fall by 25% and a small profit still results. (You can figure out all these numbers precisely, before you make the investment.)

Once you have become an Insider (by buying the White Paper ), you will have access to several valuable reports on a variety of option strategies, many of which you will not be able to find in any books on options.

All this for less than the cost of a meal for two at a decent restaurant. And once you put the strategy to work, you might well be spending many pleasant evenings at better-than-decent restaurants for the rest of your life. Who knows? In could happen. It did to me, and I want to pass on my learning experiences to you.

Become a Terry’s Tips Insider , pay only $79.95, and receive my 72 page White Paper which describes 4 unique trading strategies with complete Trading Rules for each, including the 10K Strategy that earned an average of 103% for 8 portfolios in 2005, and get all these additional benefits absolutely free:

My Stock Options Tutorial Program service, fourteen separate lessons which provide a sound background for options trading (a $29.90 value). A list of 20 “Lazy Way” companies which make 100% mathematically guaranteed in 2 years if the stock stays flat, goes up by any amount, or falls by less than 5%. The “Lazy Way” strategy involves making two trades up front, and then sitting back and waiting for 2 years for your 100% to come in. Two free months of the Insiders weekly reports (a $49.90 value) – with updates on several actual portfolio accounts with every trade ever made in each one. Each account is a real-time unfolding of one of the basic strategies developed in the White Paper . Different underlyings or investment amounts are used for each portfolio. If you would like, I will you with every trade I make in each of these accounts, so you can make those same trades yourself if you wish, maybe at even better prices.

Here is the link that could change the way you invest your money for the rest of your life - terrystips/signup.

If you are not convinced that now is the right time to make this investment in yourself, at least sign up for my free newsletter. You will receive my free report, "How to Create an Options Portfolio That Will Outperform a Stock or Mutual Fund Investment".

For more information about the "Lazy Way" strategy to double your money, click Tip #5.

For more information about how you can use the 10K Strategy in your IRA, click Tip #4.

For more information about options in general, click Tip #1.

But the most important link is right here - terrystips/signup. That is where you can order my White Paper and maybe change how you ever thought about investing for the rest of your life.

Terry's Tips Stock Options Trading Blog.

Floor & Decor Holdings (FND) Is Set To Grow.

This week we are featuring another of the Investor’s Business Daily (IBD) Top 50 List companies. We use this list in one of our portfolios to spot outperforming stocks and place spreads that take advantage of the momentum. The 10 actual option portfolios carried out by Terry's Tips for its paying subscribers have gained an average of 108% for 2017. This is down a little from a few weeks ago because many of the tech stocks that we trade options on have fallen over the past few weeks. We are still pleased with the composite results, however. (One of our newest portfolios adds the Trading Idea of the Week that we send out to you each week to its holdings).

Floor & Decor Holdings (FND) Is Set To Grow.

Investors are optimistic about the outlook for FND after a recent Moody’s upgrade and an upgrade from Zacks Investment Research to a buy rating with a $46.00 price target.

Will Essent Group (ESNT) Continue the Momentum?

This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies. We use this list in one of our portfolios to spot outperforming stocks and place spreads that take advantage of the momentum.

Will Essent Group (ESNT) Continue the Momentum?

Essent Group has received a lot of attention as of late and several analysts are expecting more upside in the stock price. Here are two of them – Essent Group Earns Outperform Rating from Analysts at Wells Fargo & Company and Zacks: Analysts Anticipate Essent Group Ltd. Will Announce Earnings of $0.77 Per Share.

ESNT has recently seen a pickup of upside momentum after a . . .

Facebook (FB): Time to Buy The Dip?

The last 12 ideas which we have published here which have expired resulted in 11 gains averaging 39% (including the loss which was only 10% on one of the spreads). If you had invested the same amount in each of the 12 ideas, you would have made 468% on that amount. Of course, we can’t promise that future results will be this great.

Facebook (FB): Time to Buy The Dip?

Several analysts are expecting Facebook stock to continue higher, here are two of them – Facebook Inc Stock Can Still Deliver Value, Event at These Levels and Three stocks to buy on recent weakness.

In This Section.

This Week's Events.

Making 36% – A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad.

This book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways (and sometimes the woods).

Learn why Dr. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA.

Tastyworks is a new brokerage firm from the brains behind tastytrade and it is our top choice of options-friendly brokers. Their commission rates are extremely competitive - options trades are only $1 per contract to open and $0 commission to close (all options trades incur a clearing fee of $0.10 per contract). The tastyworks trading platform quickly became our favorite platform for options trading and it keeps getting better with new features released each week. Terry uses tastyworks and loves everything about them!

This Chicago brokerage firm with the unlikely name thinkorswim, Inc. by TD Ameritrade is considered by many to be the best option-friendly broker. For openers, they have extremely good analytic software and their option trading platform is exceptional. Thinkorswim Mobile has been called the best mobile app in the industry. In 2017, TD Ameritrade received 4 stars out of 5 in the annual Barron`s* Best Online Brokers Survey. TD Ameritrade was tops as an online broker for long-term investors and for novices. The company is the only broker that receives the highest 5.0 score for research amenities among all firms participated in the ranking last year.

TD Ameritrade, Inc. and Terry's Tips are separate, unaffiliated companies and are not responsible for each other’s services and products.

tastyworks, Inc. has entered into a Marketing Agreement with Terry’s Tips (“Marketing Agent”) whereby tastyworks pays compensation to Marketing Agent to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastyworks and/or any of its affiliated companies. Neither tastyworks nor any of its affiliated companies is responsible for the privacy practices of Marketing Agent or this website. tastyworks does not warrant the accuracy or content of the products or services offered by Marketing Agent or this website.

tastyworks, Inc. and Terry’s Tips are separate, unaffiliated companies and are not responsible for each other’s services and products. Options are not suitable for all investors as the special risks inherent to options trading my expose investors to potentially rapid and substantial losses. Options trading in a tastyworks account is subject to tastyworks’ review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

How to Buy an ETF During Extended Trading Hours.

Stock trading the way it used to be may not have been "the good old days."

Ryan McVay/Photodisc/Getty Images.

Forex analysis software free

The Best Technical Analysis Trading Software.

There are those who say a day trader is only as good as his charting software. While that's debatable, it's certainly true that a key part of a trader's job – like a radiologist's – involves interpreting data on a screen; in fact, day trading as we know it today wouldn't exist without market software and electronic trading platforms.

A lot of software applications are available from brokerage firms and independent vendors claiming varied functions to assist traders. Most brokerages offer trading software, armed with a variety of trade, research, stock screening and analysis functions, to individual clients when they open a brokerage account. In fact, the bundled software applications – which also boast bells-and-whistles like in-built technical indicators, fundamental analysis numbers, integrated applications for trade automations, news, and alert features – often act as part of the firm's sales pitch in getting you to sign up.

Much of the software is complimentary; some of it may cost extra, as part of a premium package; a lot of it, invariably, claims that it contains "the best stock charts" or "the best free trading platform." Fact: There is no single best stock chart, or best stock screener software. There are too many markets, trading strategies and personal preferences for that. But we can examine some of the most widely-used trading software out there and compare their features. Whether their utility justifies their price points is your call.

MetaStock : One of the most popular stock trading software applications, MetaStock offers more than 300 technical indicators, built-in drawing tools like Fibonacci retracement to complement technical indicators, integrated news, fundamental data with screening and filtering criteria, and global markets coverage across multiple assets: equities, derivatives, forex, futures and commodities. Both its MetaStock Daily Charts Subscription and its MetaStock Real Time packages (especially geared for day traders) include its highly praised stock charts software.

Worden TC2000 : If you are interested exclusively in U. S and Canadian stocks and funds, then TC2000 offers a good solution. Features include stock charts, watch lists, alerts, instant messaging, news, scanning, and sorting. TC2000 offers fundamental data coverage, more than 70 technical indicators with 10 drawing tools, and an easy-to-use trading interface, as well as a backtesting function on historical data. It does not, however, offer automated trading tools, and asset classes are limited to stocks, funds, and ETFs.

eSignal : Another popular stock trading system offering research capabilities, eSignal trading tool has different features depending upon the package. It has global coverage across multiple asset classes including stocks, funds, bonds, derivatives, and forex. eSignal scores high on trade management interface with news and fundamental figures coverage, and its stock charts software allows for a lot of customization. Available technical indicators appear to be limited in number and come with backtesting and alert features.

NinjaTrader : An integrated trading and charting software system, providing end-to-end solution from order entry to execution with customized development options and third-party library integration compatible for 300+ add-on products, NinjaTrader is one of the commonly used research and trading platforms. It's especially geared to futures and forex traders. While not a free trading platform, costs can be as low as $.53 per contract, and commission rebates are not uncommon. Apart from the usual technical indicators (100+), fundamentals, charting, and research tools, it also offers a useful trade simulator, enabling risk-free trade learning for budding traders.

Wave59 PRO2: Offering advanced level products for experienced traders, Wave59 PRO2 offers high-end functionality, including "hive technology artificial intelligence module, market astrophysics, system testing, integrated order execution, pattern building and matching, the Fibonacci vortex, a full suite of Gann-based tools, training mode, and neural networks," to quote the website.

EquityFeed Workstation : One prominently highlighted feature of the EquityFeed Workstation is a stock hunting tool called "FilterBuilder"– built upon huge number of filtering criteria that enables traders to scan and select stocks per their desired parameter; advocates claim it's some of the best stock screening software around. Level 2 market data is also available, and coverage includes OTC and PinkSheet markets. However, it offers limited technical indicators and no backtesting or automated trading. Its product-specific search tools like ETFView, SectorView, etc. rank among the best stock screening software. And it even offers free trading platforms – during the two-week trial period, that is.

ProfitSource : Targeted at active, short-term traders with precise entry and exit strategies, ProfitSource claims to have an edge with complex technical indicators, especially Elliot Wave analysis and backtesting functionality with more than 40+ automated technical indicators built in. Its asset class coverage spans across equities, forex, options, futures, and funds at the global level.

VectorVest : With trading platforms and analytics software that cover different geographic regions (for the U. S., UK, Australia, Canada, Singapore, Europe, Hong Kong, India, and South Africa), VectorVest is the one for the intercontinental crowd. Its program offers comprehensive coverage for common technical indicators across major stocks and funds all around the world. VectorVest also offers strong backtesting capabilities, customization, real-time filtering, watch lists, and charting tools.

INO MarketClub : For users specifically looking for charting software, INO’s MarketClub offers technical indicators, trend lines, quantitative analysis tools, and filtering functionality integrated with a charting and trading system – not just stocks, but futures, forex, ETFs and precious metals.

The Bottom Line.

The decision to go beyond free trading platforms and pay extra for software should be based on the product functionality best fitting your trading needs. You can often test-drive for nothing: Many market software companies offer no-cost trial periods, sometimes for as long as five weeks. Novice traders who are entering the trading world can select software applications that have a good reputation with required basic functionality at a nominal cost – perhaps a monthly subscription instead of outright purchase – while experienced traders can explore individual products selectively to meet their more specific criteria.

How to Choose the Best Forex Analysis Software.

It's fair to say that Forex is an attractive market, especially for novice traders. You can go short and long, you can use a margin on your trading positions and there are lots of trading instruments available at your fingertips. Most trading is performed on a daily basis, which is also known as day trading and this is where the analysis for the trends and patterns becomes vital.

This article will provide you with an overview of some of the best Forex analysis software available and will highlight the options for traders of every level.

MetaTrader 4 by MetaQuotes.

When looking for the best tool for analysis of the Forex market, you don't have to go far. MT4, an extremely popular trading platform among FX traders, provides the tools needed for good market analysis. While some will be unaware of this platform, the vast majority of traders know and have experience with MT4, and it's the trading platform you can use with Admiral Markets.

MetaTrader 4 comes preloaded with a lot of effective and useful tools for successful trading. Of course, the most important element of MT4 is the amount of available trend indicators, oscillators and indicators of volume. You may plot over 50 different indicators on your chart and there is nothing to stop you from using multiple charts at the same time.

Another vital part of this Forex analysis software is the amount of time frames available . These tools are used to in order to plot the chart over a specific amount of time, and usually time frames are used in combination with Japanese candlesticks, where a candle shows the price ranges over a specific time frame.

MetaTrader 4 lets you plot data over nine time frames, ranging from one minute to one month. This way, you can spot short, medium and long term patterns .

Another advantage of the MT4 analysis capabilities is the number of available graphical objects that you can plot on your chart. The platform allows traders to easily draw support and resistance levels as well as draw various shapes that could help in analysing the market.

MetaTrader certainly offers users a great amount of Forex analysis tools, yet are there are even more items available if you trade with Admiral Markets on MT4. Read below to find out what these items are.

MetaTrader 4 Supreme Edition.

Admiral Markets lets you experience MT4 trading in a whole new way by providing a large amount of extra tools via its MT4 Supreme Edition plugin. Once you have downloaded it and installed it over your existing MT4 software, you will gain access to these additional tools.

Some of these tools will help you execute your trades in a better way, like mini terminal which is a major update in regular one click trading supplied by MetaQuotes. There are also additional tools that can extend your analytical opportunities.

The main Forex market analysis tools available with MT4 Supreme Edition are Market Sentiment Trader and Correlation Matrix.

Market Sentiment Trader lets you observe long vs short positions on a certain trading instrument so you can preview the beliefs of traders and see if these positions are going to be against or in favour of your potential trades.

By using this tool for the analysis of the market, you can gain extra knowledge about the currency pair or other assets being overbought or oversold by the vast majority of the retail traders. Such an indicator is also known as Bulls and Bears .

The Correlation Matrix is one of the greatest Forex analysis tools, especially for novice traders as it demonstrates how changes in the price of one currency pair are expected to be reflected in the price change of another asset. This is not a simple indicator but a matrix as it also lists the changes over the available time frames . This is done as the correlation may differ drastically depending on the instruments and their time frames.

Such a tool is especially useful for novice traders as it will help in placing your margin to the assets with the desired level of correlation.

There are of course more useful features of MetaTrader 4 Supreme Edition, yet not every of them is related to the analysis of the market. Even though MT4 is extremely popular, and Admiral Markets makes it much more useful than it is with most other brokers, there are also additional tools you can use in order to better predict the behaviour of the market .

TradingView.

Unfortunately, MetaTrader 4 and its updated version MetaTrader 5 aren't currently available as web applications. Whilst you can trade from your desktop or your mobile application, you cannot trade without installing a program. If you are simply interested in the analysis and not in the trading itself you would still need to install MetaTrader 4 in order to benefit from the rich selection of the Forex analysis tools.

TradingView is a browser application with powerful charting, so you can generally experience a great set of analytical tools without having to install the whole app. However, you cannot trade from TradingView so it is best used as an analytical tool in conjunction with a trading platform such as MT4.

Real-time charting.

When you are trading on MT4 you are provided with real time data, yet it can be hard to find live data feeds in Forex analysis software which are free of charge. TradingView supplies one of the best priced feeds, which will ensure your charts are updated regularly. It is also possible to sign up for a premium membership so your data feed is as fast as possible on all trading instruments.

Charting and indicators.

TradingView also allows you to access an enormous amount of indicators so you can perform much more detailed analysis. You can also select what type of charts to view, ranging from a regular line chart to Japanese candlesticks. Users can also benefit from handy tools such as Fibonacci retracement levels. TradingView can provide you with some good and powerful analytical tools, but as mentioned it is not a trading platform and it best used as an additional tool.

What makes this application one of the best Forex market analysis tools is its speed. You can easily apply indicators, customise your charts, and select new instruments quickly and efficiently.

Large and vivid community.

As well as benefitting from improved analysis, you can also see thousands of traders performing their predictions with the help of TradingView Forex analysis software and learn from their strategies. This way you can start relying on crowdsource trading ideas instead of only focusing on the development of your own.

Other tools.

There are other alternatives to both MetaTrader 4 and TradingView available to traders, yet most of these tools are very specific and limited in terms of their scope, or simply inferior in terms of their quality. As a novice or regular trader you will be much better off using the tools described in this article.

When looking for new Forex analysis tools, it may be worth considering custom expert advisors that you are able t find on the internet or in the MetaTrader Store. It is advisable to actually look for custom indicators and useful tools of analysis, instead of trading robots. This way you will be able to learn and understand how to make the analysis better.

Conclusion.

It is important to keep your trading simple, comfortable and have a necessary degree of clearance in your chart. There are plenty of Forex market analysis tools available to traders for free or for a charge, yet you should only focus on the tools that can be considered as a valuable addition to your trading strategy.

It is also important to have either the majority of your analytical tools or none of them at all placed in your trading platform. Usually if you have to balance between a few analytical tools and also perform an analysis on your trading platform, you may simply get lost in the overwhelming amount of the data.

This is why you shouldn't really use more than two tools for your FX analysis.

The perfect environment for testing trading decisions is with a risk-free demo account.

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The content of this website must not be construed as personal advice. We recommend that you seek advice from an independent financial advisor.

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What is the best method of analysis for forex trading?

Types Of Analysis Used In Forex.

Forex analysis is used by the retail forex day trader to determine whether to buy or sell a currency pair at any one time. Forex analysis could be technical in nature, using charting tools, or fundamental in nature, using economic indicators and/or news based events. The day trader's currency trading system use analysis that create buy or sell decisions when they point in the same direction. Forex trading strategies that use this analysis are available for free, for a fee or are developed by the trader themselves.

Fundamental analysis is often used to analyze changes in the forex market by monitoring factors, such as interest rates, unemployment rates, gross domestic product (GDP) and many other economic releases that come out of the countries in question. For example, a trader analyzing the EUR/USD currency pair fundamentally, would be interested in the interest rates in the Eurozone, compared to those in the U. S. They would also want to be on top of any significant news releases coming out of each country in relation to the health of their economies.

Technical analysis can be either manual or automated and is a system that uses past price movement to determine where a given currency may be headed. A manual system involves a trader analyzing technical indicators and interpreting whether to buy or sell. An automated trading analysis, involves the trader "teaching" the software what signals to look for and how to interpret them. Automated analysis takes out the human element of psychology that is detrimental to a lot of traders.

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Correlazione forex

What is Currency Correlation and How to Use It in Forex Trading.

Trading Forex requires great knowledge of technical indicators and fundamental events. Although most traders tend to focus on one of the aforementioned approaches, today, more and more attention is being paid to proper trading psychology and risk management. This is where currency correlation comes into play as it is strongly connected with risk management and can help you better understand the market when trading. Understanding of the correlation between currency pairs helps you avoid overtrading and using your margin to hold less desired assets. This article will explain what currency correlation is, how to understand it, and, ultimately, how to improve your trading strategy by adding currency correlation knowledge to it.

What is Currency Correlation?

It's easy to see why currencies are interdependent. If you are trading the British pound against the Japanese yen (GBP/JPY), you are actually trading an offshoot of the GBP/USD and USD/ JPY pairs; both currencies – GBP/JPY – share a relationship with the US dollar and as such, a correlation to each other. While some currency pairs will move in the same direction, others may follow the opposite direction. This is the result of more compound forces.

In financial terms, correlation is the numerical measure of the relationship between two variables. The range of correlation coefficient is between -1 and +1. A correlation of +1 denotes that two currency pairs will flow in the same direction. A correlation of -1 indicates that two currency pairs will move in the contradictory direction 100% of the time, whereas the correlation of zero denotes that the relationship between the currency pair is completely arbitrary.

The Difference Between the Currency Strength Meter and Correlation Matrix.

There are quite a few issues with poorly coded currency strength meters. If a currency strength meter doesn't give accurate currency strength indicator values, it's of little use regardless of its other features. With an outdated currency strength meter, traders might, but not necessarily, experience:

MT4 freezes; PC freezes; Stutters; Whipsaw signals; Memory leakage; CPU working constantly at 100%.

Some products might even produce data that's moved away from the original concept of what currency strength actually is. Some apply smoothing filters, like moving averages. Others apply other filters, e. g., RSI and MACD. This is just a complex algorithm of indicators that might make you enter false trades and losing streaks.

The real strength of currency trading comes from correlation. Correlation matrix has been coded properly, using the latest technologies, and is unlikely to cause any of the above-mentioned issues.

Forex Correlation Matrix.

Over the years, Forex strength meter has naturally evolved into a correlation matrix that could also be more complex and accurate. Forex Correlation , like other correlations, is a term designated to signal correlation between two of the pairs. When two sets of data are strongly linked together, we say they have a high correlation. When pairs move in the same direction, they have a positive correlation. If they move in the opposite direction, we observe a negative correlation between them. A perfect correlation occurs when pairs move in the same direction, which is extremely rare. We say that correlation is high when pairs move in almost the same direction.

Change in Correlation.

It's obvious that changes in correlation do exist, which makes calculating correlation very important. Global economic factors are dynamic – they can and do change on a daily basis. Correlations between two currency pairs may vary over time, and as a result, a short-term correlation might contradict the projected long-term correlation.

Looking at correlations over the long term provides a clearer picture about the relationship between two currency pairs – this tends to be a more precise and definitive data point. There are many reasons for a change in correlation. The most common are deviating monetary policies, sensitivity of certain currency pairs to commodity prices as well as political and economic factors.

Calculation of Correlation.

The ideal way to strengthen your position is to calculate your correlation pairing yourself. It sounds complex, but actually is quite simple. Just download our award winning MT4SE and start using it. The program will automatically do the calculation for you on different timeframes.

Although correlation ratios change, it's not compulsory to update your numbers every day. It is however, a good idea to update them when you change trading time frames.

Each country has a different monetary policy in a different cycle, so changes to these will affect some currencies more than others.

The Advantages of Using Correlation Matrix.

Elimination of double exposure: Opening multiple positions with pairs that are highly correlated is not advisable as it gives rise to more exposure. Moreover, having higher exposure to a particular currency can be harmful should the analysis go wrong. For example, by going long on AUD/CHF, AUD/JPY, and EUR/JPY, a trader gives rise to double exposure if they are highly correlated. Digging deeper, the aforementioned positions bring double exposure to AUD and JPY, which can be harmful for trade should the movement go in the opposite direction from the trader's expectations. Knowing the correlation levels between different currency pairs, a trader can get the idea of how they are connected to each other and avoid double exposure to a weak currency.

Elimination of unnecessary hedging : If the correlation strength between different pairs is known in advance, a trader can avoid unnecessary hedging. For example, there is a negative correlation between EUR/USD and USD/CHF that restricts taking positions in the same direction. The reason is when you win on one trade, you are more likely to lose on another trade, whereas volatility makes it uncertain whether the gains will surpass losses or not.

Signals high risk trades : Correlation between different currency pairs can also signal the amount of trade strategy risk. For example, if we are going long on EUR/USD and GBP/USD, and both are positively correlated pairs, it signals a possible double risk from the same position if one of the currencies is strong. It might also happen that one of the pairs is indicating a strong movement, while the other is just ranging, which signals to avoid entering trades with correlated pairs in the opposite direction. For example, if the EUR/USD is witnessing a downtrend, and the GBP/USD is ranging, a trader should avoid going long on GBP/USD, which carries a higher downside risk due to a possible USD strength.

How to Use Currency Correlation in Forex Trading.

Understanding correlated currency pairs is vital to determining your portfolio's exposure to market volatility. Since currency trades in these pairs and no pair trades in a vacuum, it's critical to risk mitigation that you learn about these correlations and how they change.

Source: Admiral Markets Correlation Matrix.

Positively correlated pairs have shown positive correlation, moving in a similar direction.

Negatively/inversely correlated pairs tend to trade in the opposite direction from each other.

Correlations are also divided into four groups in accordance with their strength. For easy viewing, all correlations in the following table are coloured to show their strength, as is noted below:

Green : Little or no correlation; Blue : Weak correlation; Orange : Medium correlation; Red : Strong correlation.

Equally important, it matters whether the correlation is positive and/or negative.

In the Forex market, currency units are quoted as currency pairs. The base currency – also known as the transaction currency – is the first currency appearing in a pair quotation, followed by the second part of the quotation called the quote currency, or the counter currency.

Downloading a Currency Strength Meter.

MetaTrader 4 is an extremely widespread FX trading platform. One of its advantages is the ability to download and use custom indicators and Expert Advisors (EAs).

The MetaTrader 4 platform comes with a useful selection of popular indicators built into the client terminal. You can also download independently written custom indicators.

As MetaTrader 4 is an open platform and has such a wide community of users, indicator innovations move fast. There are thousands of custom indicators available for analysing the Forex market using different algorithms.

You can search for custom indicators from within the chosen platform. Some charge money for the full version, but some are entirely free to download, such as our award-winning MT4SE.

Whenever you consider paying for a trading aid, remember that any reputable provider will offer a free trial version, and you can even program an algorithm yourself.

We recommend you to download MetaTrader 4 Supreme Edition – an extended version of the client terminal. It includes many features; not just the currency strength meter, but also a live trading simulator to backtest strategies. It also lets you add different custom indicators and EAs you might benefit from.

Once you've downloaded your MetaTrader 4 Supreme Edition that includes our currency strength meter, you are set to go!

Correlation Trading Tips.

Bear in mind that correlations do change, and past performance is not always a guaranteed indicator of future correlation. However this information can be used to develop your own currency correlation strategy to minimise your portfolio's exposure.

Avoid positions that cancel each other out. If you see two currency pairs that move in opposite directions nearly all of the time, you would realise that holding long positions in both of those currencies mitigates any potential gain that could be had. Diversify with minimal risk. By investing in two currency pairs that are almost always positively correlated, one can mitigate risks over time while maintaining a positive directional view. Hedge exposure. Losses can be minimised by hedging two currency pairs that hold a near-perfect negative correlation. The reasoning is simple. If you hold a position with a currency pair that loses value, the opposing currency (having a negative correlation to that pair) will likely gain, albeit with a lower final value. While such a strategy won't completely mitigate losses, those losses will very likely be reduced.

Forex Currency Correlation Strategy.

In the last few years, it has become quite common to trade currency correlations in regards to extending your portfolio of trading assets to 20 or more currency pairs with strong correlation.

Positive Green: Little or no correlation. Positions on these symbols will tend to move independently and have profitability, which is not related to each other.

Negative Green: Little or no correlation. Positions on these symbols will tend to move independently and have profitability, which is not related to each other.

Positive Blue (up to +30): Weak correlation. Positions on these symbols will tend to move independently and have profitability, which is not related to each other.

Positive Blue (up to +49): There may be similarity between positions on these symbols. Positions in the same direction may have similar profit. Positions in the opposite direction may offset each other.

Negative Blue (up to -30): Weak correlation. Positions on these symbols will tend to move independently and have profitability, which is not related to each other.

Negative Blue (up to -49): There may be similarity between positions on these symbols. Positions in the same direction may offset each other. Positions in the opposite direction may have similar profit.

Positive Orange (up to +75): Medium positive correlation. Positions in the same direction on these symbols will tend to have similar profit. Positions in the opposite direction will tend to cancel each other out.

Negative Orange: (up to -75): Medium negative correlation. Positions in the same direction on these symbols will tend to cancel each other out. Positions in the opposite direction will tend to have similar profit.

Positive Red: (up to +100): Strong positive correlation. Positions in the same direction on these symbols are very likely to have similar profit. Positions in the opposite direction will cancel each other out.

Negative Red: (up to -100): Strong negative correlation. Positions in the same direction on these symbols are very likely to cancel each other out. Positions in the opposite direction will have similar profit.

It's a relatively simple concept that allows you to judge the raw strength of a currency in isolation, as opposed to seeing what it is doing against another currency.

The calculation method may vary according to which Forex meter you use. One of the best known measures of a currency in isolation is the above-mentioned base vs quote currency concept . This gauge calculates the value of all available currencies relative to each other.

These currencies are:

The Euro (EUR) The Japanese yen (JPY) The British pound (GBP) The Australian dollar (AUD) The Canadian dollar (CAD) The Swedish krona (SEK) The Swiss franc (CHF) The Hungarian forint (HUF) The Polish Zloty (PLN) The Norwegian Krone (NOK) The Singapore Dollar (SGD) The Mexican Peso (MXN) The Russian Rouble (RUB)

A less-known, but a more comprehensive measure is the broad USD index, which uses a wider selection of currencies.

Both work in a similar way. They calculate the strength of the Dollar by aggregating bilateral exchange rates into a single number and applying a weighting for the currencies included.

The weighting applied for the broad index is a trade weighting , derived from trade data. Specifically, this is the share of merchandise imports in annual bilateral trade with the U. S.

Our correlation matrix uses complex algorithms, but is very easy to use. It even allows you to choose a strength for a certain period of time. For intraday trading, we recommend up to 200 bars, while for scalping, up to 50 bars should be enough.

Scalping: M5, 50 bars.

Intraday trading: H1, 200 bars.

Intra week swing trading: H1, 500 bars or H4, 200 bars.

Once you have a better overview of the correlations and their possible impact on the price, start trading correlation on the pairs of your choice. We suggest to start with demo account trading first. The main idea would be to open around 10 positions at once. Try to first split your portfolio into premier categories – pairs that have negative correlation. After that, try to make sure that these pairs do not correlate with each other to a larger degree. When you see price movements, identify the direction of the trade, and remove the losing positions from your portfolio.

You might also try to trade strongly correlated pairs, but keep in mind that you will probably be double-exposed to a currency. Sometimes, it might actually be a good way to trade, especially if the strength of a currency is supported by an economic fundament or important news events.

A good tip to give here is to consider setting your stop-loss on the winning trade, so they are at least equal to the loss that resulted from the closure of the losing trade, plus the cost of the spread and the cost of commission (if any) plus one pip on top of that. This way you could secure just a small gain on your profitable trade.

We hope you have enjoyed this article about currency correlation trading. Now it's time to try it out, open a demo account and try to transfer this theory into practice.

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All references on this site to ‘Admiral Markets’ refer jointly to Admiral Markets UK Ltd and Admiral Markets AS. Admiral Markets’ investment firms are fully owned by Admiral Markets Group AS.

Using Currency Correlations To Your Advantage.

To be an effective trader, understanding your entire portfolio's sensitivity to market volatility is important. This is particularly so when trading forex. Because currencies are priced in pairs, no single pair trades completely independent of the others. Once you are aware of these correlations and how they change, you can use them control your overall portfolio's exposure. (For a guide to all things forex, check out our Investopedia Special Feature: Forex .)

The reason for the interdependence of currency pairs is easy to see: if you were trading the British pound against the Japanese yen (GBP/JPY pair), for example, you are actually trading a derivative of the GBP/USD and USD/JPY pairs; therefore, GBP/JPY must be somewhat correlated to one if not both of these other currency pairs. However, the interdependence among currencies stems from more than the simple fact that they are in pairs. While some currency pairs will move in tandem, other currency pairs may move in opposite directions, which is in essence the result of more complex forces.

Correlation, in the financial world, is the statistical measure of the relationship between two securities. The correlation coefficient ranges between -1 and +1. A correlation of +1 implies that the two currency pairs will move in the same direction 100% of the time. A correlation of -1 implies the two currency pairs will move in the opposite direction 100% of the time. A correlation of zero implies that the relationship between the currency pairs is completely random.

Reading The Correlation Table.

With this knowledge of correlations in mind, let's look at the following tables, each showing correlations between the major currency pairs during the month of February 2010.

The upper table above shows that over the month of February (one month) EUR/USD and GBP/USD had a very strong positive correlation of 0.95. This implies that when the EUR/USD rallies, the GBP/USD has also rallied 95% of the time. Over the past 6 months though, the correlation was weaker (0.66) but in the long run (1 year) the two currency pairs still have a strong correlation.

By contrast, the EUR/USD and USD/CHF had a near-perfect negative correlation of -1.00. This implies that 100% of the time, when the EUR/USD rallied, USD/CHF sold off. This relationship even holds true over longer periods as the correlation figures remain relatively stable.

Yet correlations do not always remain stable. Take USD/CAD and USD/CHF, for example. With a coefficient of 0.95, they had a strong positive correlation over the past year, but the relationship deteriorated significantly in February 2010 for a number of reasons, including the rally in oil prices and the hawkishness of the Bank of Canada. (For more, see Using Interest Rate Parity To Trade Forex .)

It is clear then that correlations do change, which makes following the shift in correlations even more important. Sentiment and global economic factors are very dynamic and can even change on a daily basis. Strong correlations today might not be in line with the longer-term correlation between two currency pairs. That is why taking a look at the six-month trailing correlation is also very important. This provides a clearer perspective on the average six-month relationship between the two currency pairs, which tends to be more accurate. Correlations change for a variety of reasons, the most common of which include diverging monetary policies, a certain currency pair's sensitivity to commodity prices, as well as unique economic and political factors.

Here is a table showing the six-month trailing correlations that EUR/USD shares with other pairs:

Calculating Correlations Yourself.

The best way to keep current on the direction and strength of your correlation pairings is to calculate them yourself. This may sound difficult, but it's actually quite simple.

To calculate a simple correlation, just use a spreadsheet, like Microsoft Excel. Many charting packages (even some free ones) allow you to download historical daily currency prices, which you can then transport into Excel. In Excel, just use the correlation function, which is =CORREL(range 1, range 2). The one-year, six-, three - and one-month trailing readings give the most comprehensive view of the similarities and differences in correlation over time; however, you can decide for yourself which or how many of these readings you want to analyze.

Here is the correlation-calculation process reviewed step by step:

1. Get the pricing data for your two currency pairs; say they are GBP/USD and USD/JPY.

2. Make two individual columns, each labeled with one of these pairs. Then fill in the columns with the past daily prices that occurred for each pair over the time period you are analyzing.

3. At the bottom of the one of the columns, in an empty slot, type in =CORREL(

4. Highlight all of the data in one of the pricing columns; you should get a range of cells in the formula box.

5. Type in comma.

6. Repeat steps 3-5 for the other currency.

7. Close the formula so that it looks like =CORREL(A1:A50,B1:B50)

8. The number that is produced represents the correlation between the two currency pairs.

Even though correlations change, it is not necessary to update your numbers every day, updating once every few weeks or at the very least once a month is generally a good idea.

How To Use It To Manage Exposure.

Now that you know how to calculate correlations, it is time to go over how to use them to your advantage.

First, they can help you avoid entering two positions that cancel each other out, For instance, by knowing that EUR/USD and USD/CHF move in opposite directions nearly 100% of time, you would see that having a portfolio of long EUR/USD and long USD/CHF is the same as having virtually no position - this is true because, as the correlation indicates, when the EUR/USD rallies, USD/CHF will undergo a selloff. On the other hand, holding long EUR/USD and long AUD/USD or NZD/USD is similar to doubling up on the same position since the correlations are so strong. (Learn more in Forex: Wading Into The Currency Market .)

Diversification is another factor to consider. Since the EUR/USD and AUD/USD correlation is traditionally not 100% positive, traders can use these two pairs to diversify their risk somewhat while still maintaining a core directional view. For example, to express a bearish outlook on the USD, the trader, instead of buying two lots of the EUR/USD, may buy one lot of the EUR/USD and one lot of the AUD/USD. The imperfect correlation between the two different currency pairs allows for more diversification and marginally lower risk. Furthermore, the central banks of Australia and Europe have different monetary policy biases, so in the event of a dollar rally, the Australian dollar may be less affected than the Euro, or vice versa.

A trader can use also different pip or point values for his or her advantage. Lets consider the EUR/USD and USD/CHF once again. They have a near-perfect negative correlation, but the value of a pip move in the EUR/USD is $10 for a lot of 100,000 units while the value of a pip move in USD/CHF is $9.24 for the same number of units. This implies traders can use USD/CHF to hedge EUR/USD exposure.

Here's how the hedge would work: say a trader had a portfolio of one short EUR/USD lot of 100,000 units and one short USD/CHF lot of 100,000 units. When the EUR/USD increases by ten pips or points, the trader would be down $100 on the position. However, since USDCHF moves opposite to the EUR/USD, the short USD/CHF position would be profitable, likely moving close to ten pips higher, up $92.40. This would turn the net loss of the portfolio into -$7.60 instead of -$100. Of course, this hedge also means smaller profits in the event of a strong EUR/USD sell-off, but in the worst-case scenario, losses become relatively lower.

To be an effective trader, it is important to understand how different currency pairs move in relation to each other so traders can better understand their exposure. Some currency pairs move in tandem with each other, while others may be polar opposites. Learning about currency correlation helps traders manage their portfolios more appropriately. Regardless of your trading strategy and whether you are looking to diversify your positions or find alternate pairs to leverage your view, it is very important to keep in mind the correlation between various currency pairs and their shifting trends. (For more, check out our Forex Tutorial .)

Currency Correlations.

Each cell in the following tables contains the correlation coefficient for two currency pairs ( currency correlations ) which are named in the corresponding fields of the upper and left-hand panel.

Correlation coefficient measures how closely two currency pairs move together. If both pairs move up and down in perfect unison then their correlation coefficient is +1 . If the movement of one pair doesn't tell anything about the movement of the other pair then there is a zero correlation between these pairs. If two pairs move in exactly opposite directions then their correlation coefficient is -1 . Correlations are also divided into four groups in accordance with their strength. For easy viewing all correlations in the following table are coloured to show their strength, as is noted below:

Weak (White): the absolute value of the correlation coefficient doesn't exceed 0,3 (i. e. it can be anything from -0,3 to +0,3). Medium (Grey): the absolute value of the coefficient is greater than 0,3 but less than 0,5. Strong (Black): the absolute value of the coefficient is bigger than 0,5 but smaller than 0,8. High (Red): the absolute value of the correlation coefficient is equal to or greater than 0,8.

The correlation coefficients are calculated using the daily closing prices seen over the last 40 trading days (shorter-term) and the last 120 trading days (longer term). These two periods have been chosen from among two hundred possible correlation periods based on how well their correlation coefficients correspond with the daily price fluctuations . As you can see from correlation simulator (Please note: This calculator requires that you have Flash installed and Javascript enabled in your browser) the actual correlation will usually diverge stronger from the target value when it is calculated for shorter time periods. This makes it important to check the short-term correlations against the longer-term correlations, which is done in the REL table below. The REL (from "reliability") table compares the short-term and the long-term correlations and shows the average of both coefficients when they stay close for both time periods. It is believed that if the short-term and the long-term correlation coefficients agree, the correlation is more reliable - more likely to persist in the near future. You can check how the short-term and the long-term daily correlations change over time for the most commonly traded currency pairs at the trailing correlation page (Please note: The size of this page is 1,3 Mbs and it requires that you have Flash installed and Javascript enabled in your browser).

Correlation can also be defined as the degree of similarity (direct similarity when correlation is positive/inverse similarity when correlation is negative) that you can expect to exist between technical chart patterns (e. g. trendlines, price patterns, candlesticks and Elliott waves) visible on any two currency pairs' charts. For example, you can expect to see almost exact mirror image of the trendline appearing on the daily EUR/USD chart when you look at the same time-scale chart of USD/CHF (because the negative correlation of these pairs is so high). Daily correlation coefficients shown here, therefore, measure the correspondence between intermediate (last 120 days) and the minor (last 40 days) chart patterns visible on the daily charts of the currency pairs for which they are calculated. This information will be most useful for position traders (keeping the positions open from one day to a few days) who rely primarily on the daily chart studies. If you wish to calculate correlations for other time periods you can do so in Excel, as is described at the bottom of this page.

Currency Correlations Table.

Note : It is best to diversify into those currency pairs whose correlation is colored in White or Grey (with more caution) on the REL table. You can further narrow down the list of candidates for the diversification by excluding those pairs which have spent the least time being weakly correlated during the last 100 trading days - as is shown on the trailing correlations page ( sum of the time percentages that the 40-day and 120-day correlations stayed weak. Please note: The size of this page is 1,3 Mbs and it requires that you have Flash installed and Javascript enabled in your browser). If the correlation is colored in Red for two pairs on the REL table you can use this to select for the trading only that pair which offers the entry with the highest reward-to-risk ratio between the two. You can also use this information to clarify the technical picture (e. g. Elliott wave counts) of the currency pair that you trade by looking at the chart of the other currency pair(s), with which it is highly correlated.

Excel Correlations Tutorial.

You can calculate individual correlations for any two currency pairs and for any time period by going through these steps:

Select the currency pairs that you wish to analyze. Export the price data for each of these pairs from you forex charts (e. g. Intellicharts) to a file on your computer (the usual format for data export is CSV). Import each file into Excel by going to Data>Import External Data>Import Data and pointing to it. You might need to import the numbers as text and then replace the points with commas so that Excel can work with the prices as numbers. Make sure the dates in the imported time series agree for each row (you can skip this step if you are working with only one price feed). Delete the columns for Open, High and Low. Change the names of the columns with the closing prices to the names of the currency pairs to which they belong. Use the CORREL function to calculate the correlation. This function works on two arrays, which will be same-length ranges of closing prices for the two pairs. Simply type into one of the empty cells "=correl(" then press the "fx" button next to the formula bar and select the two ranges. The resultant formula will look like this -=CORREL(A1:A40;B1:B40) and will calculate the value of the correlation coefficient between the pairs for the chosen time period. In this example it will be 40 hours, days or weeks depending on the time scale of the charts being analyzed.

To calculate the correlation matrix of any number of pairs repeat the above steps 1 to 3 for each pair. Crop the whole table so that the names of the currency pairs are in the first row and the closing prices are only for the time period that you wish to analyze. Instead of using the CORREL function go to Tools>Data Analysis. and select "Correlation" from the list of analysis tools. Press the button next to the "Input Range" and then highlight the contents of all the columns. Check the mark next to "Labels in First Row". Select the output range by picking a cell to the right of the table. Press "OK".

Note : You might need to install the Data Analysis pack from your Office Installation CD if it is not loaded by default. To install it go to Tools>Add-Ins. then select Analysis ToolPak and hit OK to start creating your currency correlations matrix.

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