Almost all Forex traders know that Gold and US Dollar markets move against each others. It means when gold price goes down, USD goes up and visa versa. Therefore USD and gold are highly correlated and their correlation is even stronger and more reliable than the correlation that different currency pairs have. Now the question is if this strong correlation can be used in trading either gold or USD or both. The answer is yes. Gold and USD prices move against each other. When gold forms a buy signal, USD forms a sell signal, but the good thing is that sometimes the signals that one of them forms is ahead of the other one and so it can be used as a leading indicator to trade the other one.
How to Trade Gold and USD Using the Gold-USD Correlation?
First, you have to open both gold and a USD cross currency pair (like USD-CHF) price charts on your trading platform at the same time. Both of the price charts have to be set to the same time frame, for example one hour. Then you have to analyze both of the price charts, based on the trading system that you have. For example I use support/resistance breakout. So all I have to do is finding a support/resistance line on one of the gold or USD-CHF price charts and waiting for the breakouts. Sometimes you can find a resistance line on gold, but you can not see any visible support line on USD-CHF. However, the resistance breakout on gold will be followed by a sell signal on USD-CHF and so when gold goes up, USD-CHF goes down. The resistance breakout on gold can be used as the confirmation of the sell signal on USD-CHF and visa versa. So you can trade any of them that you like, while you have a confirmation from the other one.
How to Trade Gold and USD Using the Gold-USD Correlation?
First, you have to open both gold and a USD cross currency pair (like USD-CHF) price charts on your trading platform at the same time. Both of the price charts have to be set to the same time frame, for example one hour. Then you have to analyze both of the price charts, based on the trading system that you have. For example I use support/resistance breakout. So all I have to do is finding a support/resistance line on one of the gold or USD-CHF price charts and waiting for the breakouts. Sometimes you can find a resistance line on gold, but you can not see any visible support line on USD-CHF. However, the resistance breakout on gold will be followed by a sell signal on USD-CHF and so when gold goes up, USD-CHF goes down. The resistance breakout on gold can be used as the confirmation of the sell signal on USD-CHF and visa versa. So you can trade any of them that you like, while you have a confirmation from the other one.
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