Another strategy for finding entry points for making trades is the Correlation Strategy. As the name states, it combines other strategies so it cannot be used as a main strategy in and of itself. It is what has become known as a complemental strategy because of this.
As you study the market you will notice there is a correlation between some assets. Examples of this are the prices of precious metals such as gold and silver; often time the prices for these rises and falls almost simultaneously. Many currencies are like this too, the Euro and Swiss Franc often trend in the same direction. There are also many so called negative correlations too, where the price of two assets always moves in opposite directions.
So how does correlation strategy work? It works because often markets do not trend in the same direction; it makes no difference whether it is currencies, raw materials or Indexes. When using correlation theory it is best to separate your trades into two parts. This helps to minimize risk and capture the gains from the asset that moves most.
There are a few advantages and disadvantages when using correlation theory. One advantage is it can be applied to any type of financial asset. It is also a very efficient strategy when you use it with two accounts instead of just one.
There are also some disadvantages to using it. Correlation strategy is not an independent main strategy to use by itself; you have to use other strategies to support it.
But even though it is a secondary strategy, it can still be a very useful one. It is very good at helping a trader at doing operations when the time comes. Once you learn how to use it, when done correctly it is said to be almost 90% accurate.
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