Thursday, December 8, 2016

Verdure Correlation Pro

Verdure Correlation Pro


Correlation - a statistical measure of the relationship between the two financial instruments. This measure helps to identify the interdependence of financial instruments / securities. The securities in the financial markets are not isolated from each other. This realization can improve your trading. Correlation, in its reasonable use, can be extremely beneficial, although many traders do not pay attention to it.

I think you will agree that on a hot day, an ice-cream will earn more than the cold. That is, the higher the temperature, the more ice cream revenue. In this case we can speak of a positive correlation between ice cream sales and the air temperature. The same principle can be applied to the financial markets.

For example, for many years the EURUSD and USDCHF almost always move in opposite directions. Let's say we get a reliable signal to sell the euro against the dollar. We can open sell order on EURUSD, and at the same time a buy order for USDCHF. If the correlation at the time of opening orders was high, it is likely that we will get profit. Correlation is used not only in the Forex market, but also in the commodity market and the futures market, and the more important for traders to understand how it works and what its benefits are.

existing problems

  • Many sites only show a correlation between the currency pairs. On them you will not know how to correlate, for example, the currency pair futures or currency pair and goods.

  • The data on these sites may differ from those provided by your broker.

  • Strategies using correlation, it is difficult to automate.

  • A correlation can not be tracked in real time in the MetaTrader 4.

The advantages of using the correlation

To successfully trade the financial markets, you need to be able to manage the risks. Understanding the correlation operating principles will help you with this. Let's look at some of the advantages of using correlation:

  • Diversification (do not put all your eggs in one basket)

You know that the EURUSD and GBPUSD almost always move in the same direction. Let's say you have predicted the dollar's weakness. Instead of having to buy 2 lots EURUSD, you can buy 1 lot and 1 lot EURUSD GBPUSD.

After entering the market came the news that caused the EUR to fall. As a result, your long position on EURUSD became unprofitable. In this situation, on GBPUSD position can insure you, as news outlets are unlikely to exactly the same effect on both pairs.

  • Hedging (reduction of risk to a minimum)

  • Maximizing opportunities for profit

You know that the USDCHF and EURUSD move in opposite directions. Let's say you open a long position on EURUSD and USDCHF short on. If EURUSD position will be profitable on USDCHF position is likely to also be profitable.

To learn more about the benefits of using the correlation, check out the "Discussion" tab.

Benefits Verdure Correlation Pro

  • You can see the correlation between any two instruments on any chart in MetaTrader 4. For example, you may want to check the correlation between AUDUSD XAUUSD and the chart EURUSD.

  • You can track changes in the correlation between any two instruments on any chart in MetaTrader 4.

  • The indicator can generate alerts, notifications or emails when crossing certain level of correlation coefficient.

  • The calculations use data supplied by your broker, so they are always accurate.

  • Correlation is displayed as a line chart, so you can always see how it changed over time. This is very useful for analysis.

  • Automation in the EA is facilitated through the use of iCustom to obtain correlation values ​​(see. Section "tracer buffer").

Interpretation of correlation values

The values ​​are calculated and displayed in the range of -100 to +100.

  • If the calculated correlation value exceeds 80 and is positive (from +80 to +100), financial instruments move in the same direction.

  • If the calculated correlation value exceeds 80 and is negative (-80 to -100), financial instruments move in opposite directions.

Assume that the calculated correlation value for EURUSD and USDCHF equal to -95. This means that for every 100 bars these currency pair moving in opposite directions 95 times. Accordingly, if you open a long position on EURUSD, while a short position on USDCHF, both of your position will be profitable with a probability of 95%.

Below is a more detailed interpretation:

  • +100 - ideal positive correlation

  • +80 - a strong positive correlation

  • +60 - moderate positive correlation

  • +40 - weak positive correlation

  • +20 - very weak (small) positive correlation

  • 0 - there is no correlation

  • -20 - very weak (low) negative correlation

  • -40 - a weak negative correlation

  • -60 - moderate negative correlation

  • -80 - a strong negative correlation

  • -100 - a perfect negative correlation

A few examples of the correlation in the Forex market

So, open the corresponding graphs and look.

  • EURUSD and USDCHF (negative correlation)

  • EURUSD and GBPUSD (positive correlation)

  • AUDUSD and NZDUSD (positive correlation)

  • Oil and USDCAD (negative correlation)

  • Oil and CADJPY (positive correlation)

Note: Remember that correlation value depends on the timeframe. If you are trading on the M15, then the correlation value should be calculated for the M15.

Input parameters

  • SymbolA - the first financial instrument

  • SymbolB - second financial instrument

  • CorPeriod - correlation period (1 to 500)

  • LineColour - the color of the indicator lines

  • UpperThreshold - upper threshold level

  • LowerThreshold - lower threshold level

  • EmailOnThresholdBreach - send an email to the email address specified in the settings MT4

  • AlertOnThresholdBreach - video and audioalert

  • NotifyOnThresholdBreach - send a push-notification to the mobile terminal

indicator buffer

Buffer 0 - correlation value

If you want to use all the advantages of the use of the correlation in the trade, you will find additional information and resources on the "Discussion".

Verdure Correlation Pro

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