Why you need to learn about currency correlations in forex trading

One of the field to learn in forex trading is the currency correlations. Why is the currency correlation is very important? Because it can trigger temporary movement that has a huge impact on another. Take for example USD-CHF where all indicators and tend is going smoothly and there are no other fundamental macro economic news on that day of trading but suddenly it triggers a counter direction that is significantly large in volumes. That makes you wonder what cause the sudden counter movement when all fundamental and technical analysis are doing fine? 

That's where currency correlations comes into play - because the USD-CHF related to all pairs that has the USD i.e. GBP-USD, EUR-USD, USD-CAD, AUD-USD, NZD-USD etc, therefore it is affected by the movement all the related currency pairs. You can learn more about this in Mataf Currency Correlation

The impact could be temporary and others takes sometimes to reverse and correct itself. This is where the novice usually failed like I did to close position prematurely despite all the analysis were good and of course mostly exit in losing positions. Currency correlations may trigger suddenly out of the blue without warning regardless of technical or fundamental analysis.

See below how the reversal of GBP-USD also affect USD-JPY and it happens simultaneously. You can't escape from this every seconds and you can only believe in your signals and indicators.

Note: EUR-GBP has a strong correlations with EUR-USD and GBP-USD pairs. Some people take advantage of currency correlations as a strategy to trade in forex trading - and it is called hedging strategy. Where they execute simultaneous contra trade at the same time for example EUR-USD and GBP-USD. For example Buy EUR-USD and Sell GBP-USD - the idea of doing this is the chances of losing much much smaller but the winning volumes also not so big. It actually cancel out each other but at times it will make loss or profits and of course the trader will exit during profit. This is where robot is need to execute the perfect simultaneous trades.

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