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A022: Correlation

is the very wrong word for T101.

Correlation is derived from sample of past data. See Correlation and Dependence. I can imagine how frustrated to tell someone that T101 system is not about correlation.

The use of correlation coefficient for trading is not about predicting the price action. Correlation is relationship between two set of data. If two pairs have strong correlation to be each, chances to see them move in same direction is higher.

For example, from Correlation Heatmap. At this point of time, EURUSD has highest correlation coefficient with GBPUSD based on data of 1 week. Next, open EURUSD and GBPUSD chart.

You may see they are moving together in same direction at different rate. How does this help you in trading? Which pairs will you buy? The lagging pair you will say and you will close when you see reversal from leading pair.

It is useless.

If two pairs are highly correlated, the lagging pair will immediately reverses when the leading pair reverse. That's the definition of correlation. If the leading pair is blind, so will the lagging pair. Blind leads blind.

The prediction of overall market direction is more important. That's what T101 system is doing.
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