Correlation Trading: How to Choose the Best Pairs for Maximum Profit

Summary

This video provides an in-depth guide on mastering trade selection in Forex, focusing on key concepts like currency strength, market pullbacks, and the influence of large institutional players. The speaker explains how to use tools like the strength meter to identify strong and weak currencies, the importance of waiting for pullbacks before entering trades, and how to avoid common mistakes like chasing profits too late. Emphasis is placed on timing, risk management, and following the 'big boys' in the market for strategic success. The key takeaway is to control risk and only enter trades at the right moment for optimal results.

Takeaways

• 😀 Understand currency strength: Begin with a currency strength meter to identify the strongest and weakest currencies, which will guide your trade decisions.
• 😀 Don’t rely on the absolute strongest currency: While the strong currencies are tempting, they can also be risky. A slight pullback often offers a safer entry.
• 😀 Assess the depth of pullbacks: Shallow pullbacks indicate strong market momentum, while deep pullbacks may signal a loss of momentum and should be approached with caution.
• 😀 Avoid trading against the 'big boys': Institutions with large cash flows control the market. Align your trades with their moves to avoid unnecessary losses.
• 😀 Patience over impulsiveness: Resist the urge to jump into trades at the first sign of a trend. Wait for the right pullback, and never chase profits.
• 😀 Timing is everything: Waiting for the right entry after a spike or pullback is crucial. Entering too soon may result in getting stopped out.
• 😀 Use multiple pairs to time your trades: While choosing the right currency pair is essential, also use other pairs to confirm your entry point.
• 😀 The importance of risk management: Controlling risk is more important than chasing quick profits. Consistently managing risk will lead to long-term success.
• 😀 Choose currency pairs with clear, smooth trends: Opt for pairs with consistent upward or downward movement, avoiding choppy and unpredictable ones.
• 😀 Understand how spikes work: Spikes often happen to trigger stop losses. Be aware of this and allow the market to correct before entering your trade.
• 😀 Look for opportunities when the 'big boys' signal a move: Pay attention to larger market players' behavior. If they are dumping a currency, avoid trading against that trend.

Q & A

What is the first step the speaker takes when starting their trading day?

The speaker begins by using the **currency strength meter** to assess the relative strength of major currencies. This helps them understand which currencies are strong or weak, aiding in the decision-making process for selecting trade pairs.

Why is the speaker not interested in trading when all major currencies are strong?

When all major currencies are strong, the speaker notes that opening trades in the same direction for all pairs may not be useful. The market might not show clear opportunities, and it's crucial to find the **strongest trends**, not just follow everything.

How does the speaker determine which currency pairs are strongest?

The speaker compares **recent price action** across different currency pairs, checking if key levels (like recent lows or resistances) have been broken. The pair that has already broken through key resistance and continues to move in the expected direction is considered the strongest.

What does a deep retracement indicate, and how should a trader react?

A deep retracement (e.g., 75-80%) suggests the market may be losing momentum, making the trade riskier. Traders should be cautious, as such pullbacks often indicate that the opposite side (sellers) are strong, and the trade could reverse.

What is the difference between a shallow pullback and a deep pullback?

A **shallow pullback** (e.g., 30-40%) indicates the trend is likely still strong, as the price quickly reverses upward. A **deep pullback** (e.g., 75-80%) signals weakening strength, and the trend might lose momentum or reverse entirely.

What is the significance of **spikes** in the market, and how should traders handle them?

Spikes are often caused by stop-loss hunting, where retail traders have their stop orders placed near recent lows. The market spikes to trigger those stops and then reverses. Traders should **wait for confirmation** after a spike to avoid being caught in the false movement.

What is the relationship between the **big players** and retail traders in the Forex market?

The **big players** (banks, hedge funds, large institutions) control the market. Retail traders should avoid fighting against these large players because they have the capital to manipulate the market in their favor. Traders are encouraged to **follow** the big players and trade with the prevailing market trend.

What does the speaker recommend regarding **timing trades**?

The speaker emphasizes the importance of **timing**. Rather than jumping into trades at the wrong time (e.g., when the price is too high or too low), traders should wait for the right entry point, especially after a pullback or correction, to ensure they’re not buying at a peak.

What is the suggested approach for trading pairs when **Yen** is weak?

When **Yen** is weak across multiple currency pairs, traders are advised to avoid **selling** Yen at its high, as it may be overbought. Instead, traders should wait for a **pullback** to a better price level before entering a buy position.

Why is **risk management** considered more important than chasing profits in Forex trading?

Risk management is crucial because without controlling risk, traders are likely to lose money even if they make a correct prediction. The key to consistent profitability is managing losses and avoiding high-risk, impulsive trades. Focus on minimizing risk rather than maximizing profit.