November 4, 2011
- in Uncategorized by schooloftrade
Day trading rules for the dollar index correlation
Dollar Index Correlation:
Symbol = DX
Uses the same contract months as the e-minis, currencies, and bonds. So it rolls over every quarter.
The dollar index has about ¼ of the total volume than the markets we trade.
Compares the USD to a basket of currencies.
Negative correlation:
– When the dollar index rises, everything else falls (most of the time)
– If the value of your USD drops everything else in comparison is more expensive.
o When things are more expensive they become more scarce
o Prices rises when things are scarce.
– USD is the world’s reserve currency
o Large banks will use the dollar index as a hedging tool.
How do we use the dollar index correlation to profit?
If I want to go long, I buy at support. I Need the dollar index to be at resistance.
If I want to sell, I do it at resistance, and I need to dollar index to be at support.
There are two example of when this dollar index correlation will break down:
– Low volume (summertime) when the volume is low anything goes.
– When FEAR is very high.
