{"id":56525,"date":"2016-08-07T00:30:08","date_gmt":"2016-08-07T07:30:08","guid":{"rendered":"https:\/\/brookstradingcourse.com\/?p=56525"},"modified":"2016-08-07T00:40:07","modified_gmt":"2016-08-07T07:40:07","slug":"market-correlation","status":"publish","type":"post","link":"https:\/\/www.brookstradingcourse.com\/es\/ask-al\/market-correlation\/","title":{"rendered":"Ask Al: Market correlation"},"content":{"rendered":"

Market correlation: Emini and bonds (or others)
\n BPA trading room Q&A: June 16, 2016<\/h2>\n

Question: You mentioned the correlation between Bonds and the Emini. Is it worth watching for confirmation of the trend in the Emini or does it not have any effect on your trading?
\n Audio duration: 5min 13sec<\/em><\/p>\n

<\/p>\n

Market correlations 50\/50<\/h3>\n

\"Stocks<\/a>I think one of the worst things you can do, is you trade one market — let\u2019s say the Emini — and keep an eye on another market for some kind of advance notice of what\u2019s going to happen in the Emini. Every now and then, you\u2019ll hear some idiot on television say something like that, \u201cOh, I always watch Bonds to help me know when the Emini\u2019s going to turn,\u201d or \u201cI always watch the VIX,\u201d or \u201cI always watch Crude Oil.\u201d That\u2019s garbage, right? That\u2019s just total garbage. Or \u201cI\u2019ll watch the ticks or I\u2019ll watch the NASDAQ.\u201d It\u2019s all garbage. 50 percent of the time, the Emini will make a turn before the other market that you\u2019re watching; 50 percent of the time, the other market will make the turn first. I think there\u2019s no significant correlation that would allow you to trade profitably.<\/p>\n

Use one chart to trade<\/h3>\n

So I keep coming back to:\u00a0 You put up the chart in front of you; you look at the chart and don\u2019t think about anything else — just think about this chart.\u00a0 There\u2019s so much information on this chart that you do not need any other information.\u00a0 In fact, if you do use any other information, you\u2019re processing too much information and you\u2019ll probably mess up what you\u2019re doing in this chart.\u00a0 So just keep coming back.\u00a0 Force yourself; just look at the five-minute chart; just look at one chart.\u00a0 Don\u2019t look at any other charts; just look at one chart.\u00a0 There is so much information here.\u00a0 There are so many trades here.\u00a0 Don\u2019t do anything else.\u00a0<\/p>\n

Correlation opposites hedging<\/h3>\n

\"HedgeI know traders do all kinds of things, all kinds of correlations.\u00a0 Let me talk about my favorite idiot on television.\u00a0 If you\u2019ve been in the room for a while, you\u2019ll know what I\u2019m talking about, right?\u00a0 He says so many stupid things that I\u2019m just stunned that he\u2019s still on television.\u00a0 Like he says, he never trades silver because it moves too much.\u00a0 That\u2019s nonsense.\u00a0 You know, it moves the same as Gold.\u00a0 Maybe a little bit faster, you trade a little bit smaller.\u00a0 He trades Gold all the time and he says, \u201cOh, I never trade Gold in dollar terms,\u201d so in other words, he never buys Gold futures or he never sells Gold futures unless he also does the opposite in a currency market.<\/p>\n

So if he\u2019s buying Gold and the Euro\u2019s going down, he\u2019ll say, \u201cI\u2019m buying Gold in Euro terms; I\u2019m buying Gold and selling the Euro.\u201d\u00a0 If you\u2019re buying Gold with dollars, you\u2019re basically buying Gold and selling dollars, right?\u00a0 It\u2019s just total nonsense, to talk about how everything\u2019s hedged — that\u2019s not a hedge.\u00a0 If you buy Gold and sell Euro, that\u2019s stupid.\u00a0 That means you have two separate trades going on at the same time and they\u2019re independent of one another.<\/p>\n

Losing on a big short<\/h3>\n

I remember about a year or two ago when Gold was collapsing, he was short Gold and he made a ton of money on Gold, and I think he was long the Yen because he wanted to sell Gold in Yen terms. And he lost more on the Yen than he made on the Gold, and at the end he said, \u201cOh, I ended up only losing 7 percent on the trade.\u201d\u00a0 Gold lost 50 percent of its value and he was short Gold, yet he ended up losing on the trade because he did something really stupid.\u00a0 He attached it to a Forex trade, which is totally dumb, right?<\/p>\n

Pairs trading — lunacy<\/h3>\n

But anyway, every now and then you\u2019ll hear people on television talk about pairs trades<\/a>. \u201cOh, JPMorgan\u2019s strong, Bank Of America\u2019s weak.\u00a0 I\u2019m going to buy JPMorgan and I\u2019m going to sell Bank Of America.\u201d\u00a0 Or \u201cCoors is strong, Macy\u2019s is weak.\u00a0 I\u2019ll buy Coors, I\u2019ll sell Macy\u2019s.\u201d\u00a0 To me, that\u2019s way too complicated.\u00a0 If Coors is strong, I\u2019m buying Coors.\u00a0 If JPMorgan is strong, I\u2019m buying JPMorgan.\u00a0 I\u2019m not going to worry about selling a weaker cousin of something in the same space.\u00a0 And that Gold stuff, it\u2019s just lunacy.\u00a0 It\u2019s just total lunacy. Yet, I got to say I would love to have him as my neighbor; I\u2019d love to have him in my tennis group; I\u2019d love to play golf with him; and he seems like a really nice guy.\u00a0 And that\u2019s why they put him on television; he\u2019s really likeable.\u00a0 But he says so many — just so many stupid things that, for me, it\u2019s actually amusing to listen to him say these stupid things and everyone talks about him, the commodity king. And it\u2019s just incredible.\u00a0 It\u2019s really, really incredible. But I enjoy watching him because he\u2019s a likeable guy.\u00a0<\/p>\n

Going up? Buy! Going down? Sell!<\/h3>\n

So back to your question. Would I watch Bonds for a heads up or would I watch Crude Oil or would I watch Forex markets to see if they start turning. And if the Emini has not turned, then expect the Emini to turn?\u00a0 No, you\u2019re not the only guy on the planet to think about that.\u00a0 All the institutions know that as well.\u00a0 So if Bonds are turning and the Forex market is turning and the Emini is not turning, what should that be telling you?\u00a0 It should be telling you something\u2019s wrong; it should not be telling you that the Emini\u2019s going to turn next, right?\u00a0 It should be telling you that maybe the turns in the other markets are wrong and that they\u2019re going to stop turning and then go back to what they were doing before. Way too complicated. I just put up one chart<\/a> and all I care about is if it\u2019s going up, \u201cOh, I better buy.\u201d\u00a0 If it\u2019s going down, \u201cOh, looks like I should sell.\u201d\u00a0 And I don\u2019t worry about anything else.<\/p>\n

So hope that answers your question.<\/p>\n

Al Brooks<\/em><\/p>\n

Information on Al’s Online day trading room<\/a><\/p>\n

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