Sorry, you need to enable JavaScript to visit this website.

Best forex correlation strategy - How to trade

You are here

best forex trading
4.8/5 of 19 ratings

Currency correlation trading

Fortrade is a unique trading platform on which you can trade forex pairs and crypto pairs. To make profit on the platform, you need a profitable strategy, which is easy to set up. Trading correlating forex pairs might help you become successful.

You can try the strategy for free on the Fortrade demo.

In this forex strategy, we will show you how to profit on major releases, such as monetary policy meetings and nonfarm payrolls. You don’t need to be an expert in fundamentals to understand the strategy, but you should at least learn some basics.

Forex pairs correlation

The foundation of this strategy is based on the fact that some pairs tend to move in the same direction. For example, when the U.S. dollar is strong, GBP/USD will move down and EUR/USD may also move down.

If the euro is strong, then EUR/USD will move up and EUR/JPY may also move up. Similarly, if the British pound is strong, then GBP/USD will move north and GBP/JPY may also move in the same direction.

The largest moves on the forex charts usually occur after interest rate decisions. If the central bank decides to move the rates up, the currency becomes more valuable. However, if the bank decides to cut rates, currency value decreases.

How to set up your strategy

You should set up your strategy before a major event, such as the Fed’s rate decision, Fed’s chairman speech, ECB rate decision or BoE rate decision. A major event could also be a report like the non-farm payrolls, which may influence the Fed’s rate decision.

For example, you want to trade before the ECB rate decision, which will heavily influence the euro. If you know that the European central bank will increase rates, you will obviously buy EUR/USD and EUR/JPY.

If you expect the central bank to cut rates, then you may sell the same pairs. However, if you don’t know what the bank’s decision might be, you can buy EUR/USD and sell EUR/JPY.

Let’s say you buy EUR/USD with a Take Profit of 60 pips and a Stop Loss of 20 pips.

To cover the opposite direction, you sell EUR/JPY with a Take Profit of 60 pips and a Stop Loss of 20 pips.

Thus, you make 60 pips profit on one of the pairs, and you lose 20 pips on the other. Your total profit would be 40 pips.

To best perform the strategy, you must follow the economic calendar and place your trades just before the release.

How to trade

The Fortrade platform is quite easy to navigate, and you can fully automate your trading by using Take Profit and Stop Loss levels. You can choose your favorite pairs to perform the correlation strategy with one click on the star.

  • To trade on the Fed’s rate decision, you can select USD/JPY and EUR/USD
  • To trade on the ECB rate decision, you can select EUR/USD and EUR/JPY
  • To trade on the BoE rate decision, you can select GBP/USD and GBP/JPY

In the examples below, you can see similar charts on EUR/USD and EUR/JPY after the ECB rate decision.

1. You Buy EUR/USD with Take Profit 60 pips and Stop Loss 20 pips.

fortrade strategy eurusd

EUR/USD jumped 80 pips after the ECB decision - You profit 60 pips

2. You sell EUR/JPY with Take Profit 60 pips and Stop Loss 20 pips.

fortrade strategy eurjpy

EUR/JPY gained 100 pips after the ECB decision - You lose 20 pips

You can profit by covering both directions with a Buy position on EUR/USD and a Sell position on EUR/JPY. Although you will earn less profit, your balance will be positive.

The Fortrade platform is ideal for a correlation strategy as it works quickly, and you can easily switch between pairs and update your positions. Using Take Profit and Stop Loss levels, you will be able to automatically limit your losses.