Pairs Correlation Part II

In the first part of this topic, we know that GBP/JPY followed USD/JPY. And to know where USD/JPY movement, I use the Dow Jones Index. Of course I can only use it in US session by hourly chart. I don't use the Dow for the Asia or Europe session. I'll talk about it later. Now let's see the DJ Index correlation table below.

I use daily close price data for this anaysis. I think hourly close price data is more reliable but daily price seems fine by me. The table above shows that USD/JPY moved to the same direction as the Dow 53.74% of the time in May, 75.86% in June, and 63.88% in July this year.

So how to use those data? Well the simplest way I can think is when the Dow is bullish, then USD/JPY also bullish, we long on GBP/JPY. So if I know where USD/JPY going to move, why don't I just trade the pair? Well because GBP/JPY is more volatile than USD/JPY and I feel more comfortable with that;)

Sample Trade

USD/JPY Chart 1 Hour

GBP/JPY Chart 1 Hour

I long GBP/JPY yesterday and today at the circled candle on the picture above. I entered based on 3 reasons: USD/JPY was at support level, GBP/JPY was also at support level, and GBP/JPY has been on a down trend (5-13-21 EMA System) since Monday, meaning that it could reverse anytime soon. What happened after that was the trend remains;P But the pair did retrace about a hundred pips:)

I will post the Beta Coefficient analysis next on the third part.

Continue to part III