Introduction to Currency Correlation mt4 indicator
Currency correlation mt4 indicator displays the relationship of the quote and base currency in form of an oscillator.
In forex trading, a pair of currencies are always traded. The price of a currency pair will move up if both currencies are in the opposite trend. It helps retail traders to take a good decision by analyzing the correlation between currencies.
How does currency correlation work in mt4?
Currency correlation varies from 0 to 1 and -1. Point zero is used to indicate that there is not any correlation between two currency pairs. For example, In EURUSD and GBPCAD, mostly currency correlation will be zero because base and quote currencies are different in each pair.
If currency correlation is close to 1 then currency pairs are highly correlated and they will move in the same direction. For example, EURUSD and GBPUSD mostly have a positive correlation because of the same USD currency in both currency pairs. USD is common in both currency pairs.
A negative correlation means currency pairs move in opposite directions. For example, USDCHF and EURUSD will mostly move in opposite directions because of differences in base and quote currency.
Buy/Sell signals in mt4
The method of trading using correlation is by identifying the color of histogram in the indicator window on metatrader 4.
The green color of the histogram shows a bullish trend and the red color indicates a bearish trend. You can analyze trend reversals using the histogram in each currency pair and then open a buy or sell order accordingly. For example, EURUSD and GBPUSD show a positive correlation then if both show a green color pf histogram then place a buy order.
Conclusion
Correlation is the best method to avoid false breakouts. Because you will only trade when both correlated currency pairs will show a trend reversal. This will make you a patient trader and help you to make decisions at right time.
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