Simple Correlation Indicator System

I have posted a job request in MQL5.com asking for an alert to be coded into the correl8 indicator...I hope to have a functional version within the coming weeks. I will test it first and then post it here for people to trial also.

I have requested screen popup, sound alert, painted arrow, email and push notifications be coded.

Also, I have requested that either or both the crossing of 0 line, or crossing of the lines themselves be coded, and then I can backtest various methods and combinations and report any findings here.

XAUUSD Accumulation?

If so, price may well retest the daily open line before dropping...SL moved back to where it was just above Daily Open to allow room for any spikes to happen.

UPDATE: Price has broken down through that rising trendline. Hoping this works out soon now - Asian session can be so slow!

Hi Kirklea
The Correl8 indicator is superb, but difficult to understand.

We would be very grateful if you explain the conceptual and mathematical processes, to examine whether it is possible to make an EA that can work without losing control in critical situations such as the accumulation XAUUSD you show, on this case the EA could generate many orders buying and selling without possibility of generating profits, creating a high risk situation.

For other side, is very significative the coincidence from the curve of correlation of secondary currency or commodity (i.e. XAU) , that is very like to Demand Index curve for the same secondary currency or commodity, calculated by the James Sibbet algorithm.

Because this fact, very important know the conceptual foundations.

Thanks,

Subscribed Please post more chart examples for us to learn from.

Hi and thanks for your question, albeit very hard for me to answer directly, but I have a few points to make in reply.

The indicator is not mine, I found it using Google and have just tested it out for many months now on different pairs and TFs, both on it's own merits and alongside other indicators. I have no clue what mathematical processes are at work behind the scenes. All I know is that it gives a great signal when there is a divergence between the strength of two currencies, i.e as one currency is shown to strengthen, and the other is shown to weaken, I exploit this divergence and trade in the direction of the leading currency in the pair. All I know is that it works; time after time, however I have used it for many months and I don't trade every signal, only those which show steep lines diverging away in opposite directions and generally only in conjunction with S&R lines, trendlines and the other basic fundamentals of technical analysis.

If you have read the entire thread so far you will have read that I do not recommend an EA being made out of this, as EA's are essentially robotic in nature and can't react to the tiny nuances of the market that a human can. I can read price action reasonably well, and I get a "gut" feeling when a move is about to happen...this can't be replicated in an EA, so I don't believe this indicator should in any way be seen as a magic bullet that can instantly turn a profit. Rather it should be seen as just another tool in your arsenal to help identify strength and weakness in individual currencies and exploit that "divergence" as it becomes more defined, as shown by the angle of separation of the lines themselves in the indicator.

The reason I started this thread was to try and attract interest from people who could code in an alert function so I don't have to stare at the screen waiting for something to happen...I have now given this job to a coder at www.mql.com and should have this ready to test by the end of the week, after which point I will share it here. But like anything in forex, Caveat Emptor! There is no Holy Grail in this crazy game...so I offer this indicator for evaluation and testing purposes only. If it fits your trading style and you can see the logic that I do when using it, then that's great.

Lastly, what I have found after almost 10 years of trying almost every indicator under the sun, is that you need to spend time with an indicator, many many hours, learning to identify it's characteristics and behaviour in the market in relation to price action. This indicator is no different, which is why I am posting different examples to give people an idea of how this can be used in a wide variety of ways, and on different TF's. At the end of the day it is YOU that will determine an indicator's usefulness - an indicator is not inherently useful unless you learn to understand it intimately.

Sorry I couldn't answer your question more specifically, but it is important that people understand the points I have made above and not expect any magic.

Good multiple TF trade example on the H1 with both H1 and H4 correl8 indis on the same chart.

1) On the H4 indi, notice how leading into the move, there is a slow contraction of the lines, and then the USD dips below the 0 line, indicating USD weakness.
2) Both currency lines are now showing weakness under the 0 line, and this is indicating indecision in the market - we wait for a long signal.
3) On both TF's we get a cross of the lines themselves indicating a shift is taking place
4) Trade entry at start of new candle
5) SL placed at recent swing low
6) EXIT STRATEGY - there are several. In this example I offer two alternatives; we can use either the H1 exit signal or stay in the trade until the H4 exit signal.
(Or if you prefer a shorter TF why not introduce a 15M correl8 into the picture? It may create a little more noise, but it is your strategy, so try out what you reckon in line with your trading style).
Results - 80 pips inside a day and a half, or 130 pips in 4 days...is it worth waiting the extra time for the extra pips? Your call, but I would probably take what is on offer earlier and look for better opportunities rather than tie up capital for a few more days.

Also, if you were to use the 15M and 1H TF's instead, you would have many more trading opportunities present themselves inside of this larger move. I wouldn't have a third correl8 on the screen as it takes up too much real estate. Rather, I have 3 active charts, 1 showing 1M and 5M, another showing 15M and H1, and a 3rd showing H4 and D1. This way if I am in the mood for scalping I can, but I can also easily see what is happening in the longer TFs.

A quick update on getting the indicator coded better to show the alert function.

I have decided on better logic for the coding of the alert function, based on the volatility of the divergence (steepness of the lines as they separate).

This will now mean that a crossing of the lines at the zero level line is no longer as important. Rather, the amount of separation immediately after the cross is critical.

Basically, the indicator will now calculate the value of the each currency line at the start of each new candle once a cross has occurred.

E.g. one currency may have jumped above the 26 level line and have a value at +31, whilst the other currency may have dipped slightly and have a value of -10. The formula will add the relative distance of the two values away from each other and arrive at an answer of 41 (one currency is 31 away from 0, the other is 10 away from 0 in the other direction = 41). Please note that it is not necessary to have ANY level lines visible once this alert function has been coded in.

As long as this number is greater than 24 it should provide an ideal signal. This is based on me having watched this indicator for many hours and backtesting potential signals, calculating the value of the lines at the start of each new candle after a cross, and concluding that a separation of at least 24 does indicate a tradable move. I have asked the coder to make this number a user defined field so different settings can be tested.

An additional criterion is that there must have just been a cross of the lines on the next highest TF. This should help reduce noisy, false signals during sideways markets.

Exit criteria - the indi will calculate the distance again between the 2 lines as they start to converge, and a combined value of less than 24 will signal it is time to close the trade.

See attached screenshot.

Please note that the cross of the lines no longer needs to be above or below the 0 level line, that is now irrelevant. It is better to measure the divergence itself and use that absolute value to determine a signal, rather than where the cross has occurred within the indicator display.

I am really liking the logic of what is slowly evolving here...I hope others can see some worth in this also. Dare I say it? I am thinking that this actually could be coded into an EA after all, perhaps one with user defined trading session times, news filters and so on. But I'm probably getting ahead of myself!

Hello Kirklea:

I appreciate your answer sincere and transparent; and I fully share their opinion about it is not possible to make an EA and the need for an alert function.

I must emphasize your generosity in sharing this indicator and above all share their experience in the use of this indicator to follow the price action and market behavior.

Thankyou in advance by share the new version from indicator with alert fuction.

Someone modified it with alerts and gauge display.

The currency line crossing the 0 line isn't the signal?

Thanks ADance for your comments, I appreciate them. Stay tuned for more updates!

Hello again...the indicator is evolving as I explore this whole concept in greater detail.

Whilst there is nothing essentially wrong with the concept of a 0 line crossing as the visual alert (it's how I have traded this over many months now, with success), now that I am analysing this more after starting the thread, and thinking critically about how to code it logically, it has revealed more to me than I had previously noticed.

Please read (or re-read) my most recent posted update regarding the coding of the alert, which offers clarity on the changes and the logic behind them. This should provide a clear explanation of how this idea is slowly evolving over time.

As soon as the revised indicator is available and I have tested it for functionality, I will share it here for all to test and share your ideas. I am hoping this will be within the next 2 to 3 weeks, but testing obviously takes time. Regular updates will be provided however.

Backtesting new indicator logic on different currencies and have decided on a new combined value number of 52, NOT 24, when entering a trade and exiting. This is an important change, so please examine the following screenshot closely to understand why this change has been made. A value of 24 may be ok but it may be a noisy and not provide a strong enough signal to warrant opening a trade.

Also, because we are using the next highest TF crossover signal as a pre-requisite for entering, note that we need to wait until the close of that higher TF candle before we move on to STEP 2 and check for crossovers for the chart TF in Window 2.

Before I continue however, using this indicator does not remove the need for basic technical analysis, i.e. drawing your own S&R lines and so on.

The attached screenshot shows a great trade example on AUDUSD 4H with the confluent signal having first come from the next highest TF (D1).

Notice there is a strong resistance level that has been tested a few times and failed. Notice also the contraction on the D1 corel8, indicating a possible reversal as indecision sets in. We are looking for a trading opportunity after a cross on the D1.

On screenshot example, at the close of the D1 candle in Window 3 of the chart, there is a cross with a value of 141, well above the required level of 52. So we now do 2 things:
a) check that there has already been a cross in the same direction as what just happened on the D1 in Window 3, or otherwise we wait for a cross to occur at the close of a candle, and;
b) calculate the combined value on the current TF in Window 2, and if > 52, we enter our trade. If the combined value <52, we wait for the close of the next candle and calculate the value at that time, and rinse and repeat.

See screenshot example - there is a cross on the H4 with a value of 71. Also note that the candle formation for that candle is a DOJI just above a previous resistance level. Another reason to support our long trade. We enter long at the open of the new candle.

Stop Loss will be just below previous resistance level using whatever SL method you like to use.

Now just relax and wait until an exit signal on the H4 display in Window 2. We will see the lines start to converge, and indicator will keep calculating the combined line values at the close of each candle. Once the combined value falls below 52, it will alert us to exit the trade.

If you are user of Pivot Points you may choose to exit the trade manually at any point that you noticed the lines converging as price approaches a PP - just a thought.

Please know that I AM aware that backtesting in this way can seem to some people like "curve-fitting" i.e. it is so easy to see the value of an indicator in retrospect. The true value is what lies in front of us and whether these signals will work into the future. I only include these examples to help in understanding the logic behind the system I am working toward.

That's why I am having this coded and will be forward-testing this on ALL currency pairs that the indicator offers, and on most TF's (1M up to D1).

TO SIMPLIFY:

STEP 1: Wait for a crossover in Window 3 of the chart, which is the display of the next highest TF - wait until the CLOSE of the candle to confirm the cross.
STEP 2: Calculate the position of the lines in Window 2, by doing the following...
a) place a vertical line through the candle that has just closed in Window 2
b) hover your mouse immediately over the two lines and a little display will show giving the value of the line at that point in time
c) Add these values together (ignoring the minus sign for the line below zero - we are calculating the overall separation, i.e. the distance from zero to the positive line value, and the distance from zero to the negative line value).
d) If this combined value is equal to or greater than 52, we enter our trade in the direction of the line representing the leading currency in that currency pair.
e) I the combined value is < 52, we wait until it climbs above 52 at the close of the next candle...Rinse and repeat.

STEP 3: Once in a trade, we only refer to Window 2 values, and exit at the first candle close where the combined value drops below 52.

This may seem a lot to actually do manually right now, but rest assured the newly coded indicator will do everything for you and alert you at the right time.

kirkle is it correct entry?



How long do you earn on this indicator and system?

Yes that looks fine, in the sense that on the H1 chart the NZD strength is still well above the zero line and the USD strength is still well below.

And you are spot on regarding the S&R levels and the retracement before entering.

I would possibly check what was happening on the H4 chart also as additional support for your trade, and maybe even look at the 15M chart to time the entry better. I really like multiple time frame analysis using this indicator.

See the 1st screenshot showing the awesome cross on the H4 - this would have been the perfect entry place around here, but as you can see the strength on the H4 chart is still there so your entry today is in line with the longer term picture of what's happening. between these 2 currencies.

On the 15minute chart however it tells a different story, and it is here that we find your entry may have been timed a little better.

See the 2nd screenshot showing the 15minute on top and the H1 below. The H1 is still showing strength in line with your trade direction however the 15 minute is only just approaching a signal now. Ideally I would wait until the 15minute candle was completed to ensure I wasn't getting in too soon. Also, read my latest posts about how to spot a really strong move with good separation of the lines...this hasn't really happened in this example as yet and so the market seems to be a bit quiet just now.

This is not to say you were wrong in trading the signal...your trade may well turn out well for you, there is no way of knowing unfortunately - else we'd all be filthy rich! But learning to identify the perfect entry relies more on analysing what's happening on shorter time frames, whilst always keeping in mind the underlying strength of the currency on a higher time frame.

Thanks for showing interest in this system - I hope to be able to help you more.

Ideally you would have got in at the close of the 1Hour candle immediately after this sharp crossover. Having said that, use caution when pushing up toward the daily open line, as in this example, as it may just bounce right off it and continue down.

The best scenario on this currency pair right now would be to wait for another clear and sharp separation signal to the upside, preferably on the 15minute TF for a better entry. You already know there is NZD strength by seeing it on the H! and the H4...even the Daily and Weekly charts are showing strength.

Also I just realised you asked me another question and I didn't answer it...how long have I been earning using this system? Basically I have been trading this for a few years, but always with other indicators. I decided a few months ago to trial using it on it's own and the results have been pretty good.

I like it so much that I am paying a professional to code an alert system to try and make it even better, and give me alert signals to my email and/or mobile phone so I don't have to sit at the screen and wait for trade setups to occur.

Hello again, looks like your trade worked out after all, congratulations.

I just wanted to add this screenshot of the trade I would have made if I had waited around for the signal that was coming on the 15M TF.

STEP 1: Check that your chart is still showing strength in the direction you are thinking of trading - good;
STEP 2: Head on down to the 15M and wait for a strong cross to try and get a better entry point - good;
STEP 3: At the close of this crossing candle, calculate the separation of the lines by hovering your mouse just over the lines themselves on the new candle. Add the figures together for both lines (ignore the negative value for the line below the zero line). If the combined value measures 52 or greater it is a strong signal and can be traded.
STEP 4: EXIT STRATEGY - stay in the trade until you notice the lines starting to converge. At the close of each candle, recalculate the values and check whether the new combined value is falling under 52. At the close of the first candle that shows a combined value < 52, exit the trade.

Or you can use pivot points, S&R lines, Average Daily Range, Fibonacci etc etc etc...your call...but I promise you, this strategy works just fine if you follow these guidelines.

All will be automated soon enough; in the meantime get practicing with looking at the combined values of the lines at the close of a candle and determine whether it is a strong move or not so much.

Thank you very much holding the position.

First, thank you for the indicator, method and all your posts and clarifications.

Need to double check this: we calculate the separation strength (i.e. > or < 52) ONLY in the indicator for the current time-frame, right? The separation in the next higher TF should be visually apparent, but does not need to meet the 52 requirement. Is this correct?

Thanks again!

STEP 4: EXIT STRATEGY - stay in the trade until you notice the lines starting to converge. At the close of each candle, recalculate the values and check whether the new combined value is falling under 52. At the close of the first candle that shows a combined value < 52, exit the trade.

But on M15 or H1 ??