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How Correlation can Influence your Trading Strategy

WTI Oil and S&P 500 16 January 2019

Each and every market is interlinked, some very closely while as for others the link is much more tenuous and nuanced. A skill every trader should be working on is in understanding these correlations and recognising when sensitivity to a certain correlated market is increasing. By keeping track of correlations, a trader can use them to enhance entries or alternatively guard against taking a trade that matches up with the current correlation.

Recently, strong moves in WTI Oil have been impacting equity markets – in this example Oil had failed to breakout higher and was turning back to support at 51.74. This move had in turn dragged the S&P 500 lower to the highs of its overnight session and buy zone 2617-16, but when Oil couldn’t hold support, the S&P 500 followed with a lack of willingness to buy at the level and finally rolled over as momentum picked up in Oil.

The action is picked up with Oil bouncing from support at 51.74. The order flow that initially showed support in S&P 500 and Oil is discussed in this live Axia debrief, followed by the shift in momentum in Oil which discouraged further buying in S&P 500 and break down through level, illustrating the importance of tracking correlation and the pick up in momentum.

Momentum trade strategies are covered in module 8 of the Axia Price Ladder Course which has been updated with more drills to practice skills with as well as bonus material looking at how to play correlation trades.

If you are looking to develop a career as a trader within a professional and successful environment then the Axia Futures 8 week Intensive Trader ​Training is the most comprehensive in the industry based​ ​upon​ ​skill​ ​development​ ​within​ ​the​ ​proprietary​ ​futures​ ​trading​ ​environment. 

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