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Correlation indicator
Been experimenting with this particular indicator ,works very well on trends.
It also works well with Intraday stocks and daily stocks.
Following will be some reading material see what you think.
: Interpretation
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Correlation analysis involves a "dependent" and an "independent" variable. Correlation analysis measures whether or not a change in the independent variable will result in a change in the dependent variable.
A low correlation coefficient (e.g., ±0.10) suggests that the relationship between the two variables is weak or non-existent. A high correlation indicates that the dependent variable (e.g., the security's price) will change when the independent variable (e.g., an indicator) changes.
The direction of the dependent variable's change depends on the sign of the coefficient. If the coefficient is a positive number, then the dependent variable will move in the same direction as the independent variable; if the coefficient is negative, then the dependent variable will move in the opposite direction of the independent variable.
A useful feature of correlation analysis is its predictive capability, because the correlation coefficient shows how well a change in the independent variable (e.g., an indicator) predicts a change in the dependent variable (e.g., the security's price).
The Correlation indicator can be used in three ways:
Correlation of a security's price to an indicator
You can measure the relationship between an indicator and a security's price. A high positive correlation coefficient means that a change in the indicator usually predicts a change in the security's price. A high negative correlation (e.g., -0.70) means that when the indicator's value changes, the security's price will usually move in the opposite direction. Remember, a low (e.g., 0.10) correlation coefficient indicates that the relationship between the security's price and the indicator is not significant.
Correlation of one security to another
Another use of correlation analysis is to measure the strength of a relationship between two securities. Often, one security's price "leads" or predicts the price of another security. This is especially noticeable with commodities. For example, the correlation coefficient of gold versus the dollar shows a strong negative relationship. In other words, an increase in the dollar usually predicts a decrease in the price of gold.
Correlation of one indicator to another
Another use of correlation analysis is to measure the strength of a relationship between two indicators. Often, one indicator's movement "leads" or predicts the movement of another indicator. For example, a volume-based indicator (i.e., Chaikin Oscillator, Money Flow Index, etc.) may be found to lead a momentum based indicator (i.e., RSI, Stochastic, etc.).
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