MT4 NexGen Correlation Matrix
Education - AxiTrader Team | 11 Aug 2014
I’m going to take you through the Correlation Matrix. The Correlation Matrix is a very powerful feature in MT4 NexGen.
First of all, to add it to the chart, we drag and drop. Click OK. It’s going to load up for us.
What the Correlation Matrix does is it lets you see how often currency pairs move together. A lot of the time when you’re trading, you might take multiple positions in multiple currency pairs. But if they all move in the same direction at the same time and they’re over-correlated, then you actually end up with one big position in one direction. At other times, you might want to take different positions in different currency pairs to diversify the risk of an adverse move.
Here’s how we use the tool. Once this is on the chart, we can add or change currency pairs that we would like through the list here. I’m just going to leave it as-is for now.
You can look at correlation over a variety of timeframes: 15 minutes, weekly, etc.
You can look at it over a certain number of bars. Obviously, the greater the number of bars, the greater the correlation potentially could be over a longer timeframe.
In here, you can choose to see only Strong correlation, Medium, Weak correlation, etc.
The different colours represent different levels of correlation. Green represents no correlation. Blue represents weak correlation. Orange is medium correlation. Red is very strong correlation between currency pairs.
The higher the number, the greater the positive correlation. The lower the number the greater the negative correlation.
The final thing we can do with the correlation matrix is to bring up our Trade list. Initially, it says Select a number of currency pairs. You can then see the average correlation over the currency pairs you have selected. This can be quite useful because you might look at the trades that you are about to take and check how correlated they are as a basket, or you might look at your current positions and see how correlated they are as a basket.
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