Caution with currency correlation

We hate to do this, but just when you thought it's easy, there is a catch. A strong positive correlation for a one time period say "1 week" can change to "negative" correlation for a "1 month" time frame and then "zero" for a 3 month time frame.

Not to worry. The learning here is that correlations like everything else is also in a state of flux. They range from small movements to big swings as you change the time periods. So be cautious!

Many factors affect the change in correlations. It could be anything from fundamental such as interest rate changes to political events or the emergence of new technical patterns.

It's not all bad news! Just make sure you use correlation data to trade in the same time frame. So use a 1 week correlation for a 1 week trade period and a 1 day correlation for a 1 day trade period. It's that simple.

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