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Hey, everybody. How you doing? I’ve been thinking a lot about correlations, as you know and I’ve had this idea. Not only do I think that it’s possible to trade a correlated pair once it moves out of correlation back into correlation, but I thought to myself, “Hey, self, what if we traded a currency pair, which is generally not correlated, but we only traded it when it went back into correlation because that’s when things are messed?”
Let’s take a look over here at the charts and I’ll show you what I’m talking about. I said we were going to move to the charts, but I didn’t really mean that ’cause these are not charts. Some of you ask me why I use these pieces of white paper instead of just using the white board and that’s because the white board is too glossy.
Let’s take an example of … Here’s an example of a currency pair that is generally not … these two currencies are not generally correlated. The British Pound and the Japanese Yen typically do not have anything in common. If the British Pound is moving up, the Japanese Yen might move down or it might move up. It doesn’t have any correlation like when you do a correlation study, it might come out .02, but whatever, it’s not very correlated. Not very correlated at all. I meant … whatever, you get the idea, right? It’s not very correlated and they don’t really move together and that is why the British Pound-Japanese Yen … the pound-yen can trend upwards forever and never stop and never turn around and blow up everybody’s trading accounts and everybody hates this currency pair or mainly, by everybody, I just mean me.
What if, for example, we watched for times and places where the British Pound and the Japanese Yen go into a harmonious bubble of love and mutual dedication? What if the British Pound and the Japanese Yen enter into a currency pair love affair and they become correlated? Now, if that happens, then conceivably that means they’re going to rocket right back out of correlation and began some kind of significant and gigantic and special trend.
Now, let’s move over, for real, to the charts and take a look at whether we can trade this only when it goes into correlation and then back out again.
Here we are on the British Pound-Japanese Yen and we are looking at … we want to find an area where these become highly correlated, which would be right in here, right? Okay. Then we would look for, maybe, a trend line break and then a trade down, so the British … we would sell the British Pound at that point, so let’s look at the 16th of October at 11 a.m. in the British Pound-Japanese Yen. 16th of October at 11 a.m. 16th of October at 11 a.m. Right there. We drop lower, but nothing really important happens, so that doesn’t really … that doesn’t really apply. That’s not really interesting.
Let’s just, for the sake of … let’s just take a look at when they really diverge and they become uncorrelated. Okay, right over here’s a good one. All right, so they’ve just completely gone out of correlation here on the 21st of September at 1 a.m. 21st of September at 1 a.m. and that is … holy fudge balls. It’s the same as it was with … it’s the same as it was with the freakin’ correlated pairs.
When the British Pound and the Japanese Yen fall out of correlation, exclamation mark, question mark, then a trend is coming? Well, holy shiz balls, that’s interesting. All right well, what do you know, everybody? If you want to see more videos about this, if this even interests you in the least, click the subscribe button, let me know that you like this video. Like this video. Leave a comment on this video. Hug your … the parent that you despise the least or just let me know. I love you all. See you next time, everybody.
Have the best day ever.