BTC/USD versus EUR/USD do they correlate?

[thExit]

Greetings traders,

this is not the first time that while trading Forex I'm looking at crypto-currency charts, and there is a certain degree of correlation to be observed. This deserves a proper measurement, and I don't advise to get too excited over the fact of correlation between different currency pairs- even if they correlate, it's not always a fact that can be put to your advantage (as a trading decision trigger/signal to buy or sell). It may not be a signalling method by itself, but it may assist you in your judgement, for example, if interpreted correctly, it may give justification to certain price action, in today's case, a decline in BTC/USD price as I would assume. It's always good to know why sth in the market is happening, even if it's too late to make a profit from it. I never used and don't advise you to use correlation as the main means of making trading decisions, it's rather "for your information" only, but it's better to point a certain price behaviour rather than to ignore it.

Please refer to the following pictures that compare the M5 price action of EUR/USD, GBP/USD, BTC/USD and LTC/USD. All of those pairs should exhibit positive correlation, and more or less they do, especially under the influence of FED September meeting, in between 21:00 and 22:00 CET.

http://s8.postimg.org/l8vc7u5kl/eu_bu.jpg

This is interesting because the paths of crypto and fiat currencies meet at some point, and this point is the FED meeting. Their statements influnced stadard Forex pairs, but also influenced BTC/LTC. I'll try to dig deeper and give you some more insights.

Kind regards,
Piotr

[1715623677]

1715623677

[thExit]

GBPUSD a bit late, do they really correlate? How accidental is this? Money flow is not accidental. Yesterday fiat dropped, BTC dropped, today fiat rose, BTC dropped even more, but as fiat regained ground, BTC almost entirely wiped out the losses. Who's causing this?


http://s28.postimg.org/gg3xhfo65/screen.jpg

[grappa_barricata]

I see you are digging into this... it is very interesting.

[thExit]

I see you are digging into this... it is very interesting.

Thank you. I believe there is much digging or mining;) to be done. I'd need to threat this as a side project, besides the stuff I'm already involved in, so the amount of time I can contribute is rather low, but I'll do my best. If I can use my FX knowledge to spot any regularities, I'll give you a shout here. The more informed a trader is, the better. On the other the amount of information can be overwhelming, so every time you come across a new piece of info (or a source/stream of info), you need to judge its accuracy and relevance with regard to your particular trading style/or simply your needs. Such judgement comes over time/with experience. Please always remember to be sceptical about every opinion, advice, method you hear about. Do your own judgement, don't trust blindly, even if the info comes from so-called experts. Opinions can have no relevance with regard to what the market will do, though there are a bunch of people (in the FX world), that have the right view most of the time. I guess it will be the same in the crypto-currency world.

Digging into this topic would require insider knowledge, knowledge directly from the forces (funds, investors) that drive the price. I doubt if this knowledge is obtainable. One thing we can observe are the regularities, not the cause of them. The result is that we are too late to grab the move, this is why I'm saying it's only for the informative purpose. You can't ride the move, but at least you may have an idea of what's happening on the market, and having this idea you can judge if your original trading method can be put to your advanage, or is it better to step aside for a while.

I'll try to come up with a methodologic approach to judging the correlation on different time frames, some indicators will need recodingto be used on BTC pairs, but I guess it's doable.

Kind regards,
Piotr

[thExit]

There's one issue that can be interesting, this is how FX participants or stock market players can switch their interest to BTC. The market is small enough to be manipulated, and mature enough to allow profits. Pumps and dumps aren't a novelty in the altcoin markets, they happen on stock markets on a day to day basis, but I'd be skeptical to say that FX players are joining the Bitcoin or altcoin market.

With regard to naked speculation, I used to talk to a director at one of the Forex brokerage companies, he was an experienced stock market investor. While investing, he used to observe pumps and dumps day after day at our Polish stock exchange (GPW), which is a relatively small exchange. The director kept a journal of stocks that were pumped and then dumped. Each day or within a few days, new stock, increase the value, grab some suckers, and then dump, then another one. He observed it for one year. I was quite surprised to learn about that, so I asked if there was a method to profit from such observations. The point is that it becomes visible only at the dump moment:) so there's no way to judge if those are speculators trying to suck others in, or is it a price increase that has some fundamentals behind it.

Here's a less skeptical bit about the FX players.

http://www.forexfactory.com/showthread.php?p=7681402#post7681402

I cant help but think this is FX market whales (that normally operate on the fiat FX market) making their $ on short selling because of lack of regulation on BTC. Would help to explain why its a bit quieter around FX world. Of course it cant possibly account for all the quiet around fiat FX, but it would just take one or two big FX whales to take an interest in BTC market to push the price around to whatever they want, quite cheaply and quickly. They would only need to spend much % of their usual daily trading allowance to get the price down to 250 / 300 then just flip the switch and buy the heck out of it and watch it rally to who knows what levels! Of course we wont really know anything about all this until its old news for the insiders.

[thExit]

Hi,

I'd like to quickly share with you some of my thoughts that were provoked by this weekends' decline in BTC/LTC and many other cryptocurrencies. I've pasted this message from my theSolution Land Fund thread at litecointalk.org (https://litecointalk.org/index.php?topic=21194.45)

As Forex is my background and I'm trading actively, I cannot pass over the fact of correlation between the price of pairs BTC/USD and similar Forex major pairs, namely EUR/USD, GBP/USD. I know that I'm not discovering something new, but not all of the investors are aware of that. If USD is getting stronger across the board, this will result in other currencies losing value against USD, hence a decline in price. BTC and other cryptocurrencies manifest the same behavior. Please look at the following charts of EUR/USD and BTC/USD presenting what has happened on last Friday ( 3rd of October). At 14:30 CET (I'm using my timezone) there was a publication of US economic data, the Non Farm Payrolls or Non Farm Employment Change, along with some other data ( http://www.forexfactory.com/index.php?day=oct3.2014):

The data caused a strong market reaction, contributing to USD strength:

http://s28.postimg.org/sqsm2toal/eurusd_btcusd.jpg

This strength sent BTC and other cryptocurrencies tumbling, and the slide continues over the weekend, as many cryptocurrencies holders are in panic selling mode. The sentiment wasn't favourable to BTC and this Friday's economic data and market reaction isn't helping as well.

There are other factors contributing to this fall in prices, e.g. wider adoption of BTC as a payment method among businesses who instantly sell the BTC to get their profits in fiat. Another factors can be seen within the cryptocurrency sphere (Butterfly Labs problems, Russia's upcoming ban?), but this post is intended to shift your attention towards the wider view on currencies.

Kind regard,
Piotr

[grappa_barricata]

Thanks thExit, I enjoyed your posts, and so I hope you'll have more time for this in the future. While I'm not in FX/stocks by any means, what you said about the Polish stock market make sense. As long as something is technically possible, and someone has an incentive to do it, it will happen. When trying to detect a pump-n-dump before the pump phase, it may be useful to look at volume and volatility. If volume increases considerably, but volatility doesn't follow, then chances are somebody is accumulating a long position in stealth mode. Before a pump, this has to happen. But at that point you can't be sure that this someone is accumulating a long or a short position. So you have to wait for confirmation about what the accumulation was about. This may come from the market movements in the following period, or even by spotting stop-hunting. A nice training ground to see this are the altcoin markets, where things are more obvious-looking and, given the sheer number of altcoins, probably there is at least a market in any of the pump-n-dump states.