Predicting Crude using Intermarket Analysis

Here is a quick run of the dollar index and crude from 1984. The problem with the dollar index relationship is it can decouples sometimes for a year or more. I will post more analysis of this soon.
In addition this shows the power of the relationships with the mutual funds and ETF's because as you can see none of these combinations for the dollar index made money on the short side, the best lost a few hundred dollars. The earlier example using a energy based EFT made 20K on the short side in the past 5.5 years during crudes big bull market.

We will also look at different currency spreads to trade crude soon.
 

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Murray :

You mean invers dollar-index, for example the EUR/USD ?
Stocks leads commodities, that's no breaking news. But I have not found that EUR/USD leads commodities(here : crude).
 
Quote from Tyren:

Murray :

You mean inverse dollar-index, for example the EUR/USD ?
Stocks leads commodities, that's no breaking news. But I have not found that EUR/USD leads commodities(here : crude).
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The Dollar in negatively correlated to Crude. John Murphy talked about this relationship in his original intermarket book (1991) and so did I in Cybernetic Trading Strategies. The reason is that Crude is priced in dollars so falling dollar means it takes more dollars to buy the same amount of crude. This relationship decouples during times of unrest in the Middle East and this is why it is less reliable than the relationship with energy stocks , you can improve it if you filter the trades using correlation analysis.
 
Quote from Murray Ruggiero:

Decoupling is a very complex issue which I discussed in my orginal intermarket thread. If you have question , please ask here or in the orginal thread.
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"Decoupling" -- that's got to be one of the better euphamisms out there :)

But seriously, about that "very complex issue" -- do you really think the dollar doesn't have other issues to deal with outside of crude oil, and vice versa? Outside of the fact that any commodity that is priced in dollars tends to go up as the dollar falls, what is the real edge is studying currencies vs crude oil, as opposed to just learning the in's and out's of the crude market itself -- supply, demand, market psychology etc? In other words, how is studying currencies going to get you long before crude makes a move higher, and short before crude goes down, any sooner than one who watches crude oil tick by tick, day in, day out?
 
Quote from illiquid:

"Decoupling" -- that's got to be one of the better euphamisms out there :)

What is the real edge is studying currencies vs crude oil, as opposed to just learning the in's and out's of the crude market itself -- supply, demand, market psychology etc? In other words, how is studying currencies going to get you long before crude makes a move higher, and short before crude goes down, any sooner than one who watches crude oil tick by tick, day in, day out?
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Intermarket market analysis can be though of as a type of instantaneous fundamental analysis. It not really meant to work on a tick by tick basis. It give you a general bias and direction. My intermarket work looks for times that these underlying relationships are moving opposite to the market you are trading. In the case of the the EFT I used earlier, if the oil stocks are risking and crude is falling you buy crude, so by definition of my rules you see the move in crude before you would looking at crude.

These relationships are not perfect but nothing is in the markets. If you can fine a system with 20% efficiency in real life you are doing good. What I mean is if you can capture 20% of the sum absolute value of all Close-Close[1] or Close-Open, that is about all you can expect for long term performance of a trading methodology using simple rule based systems.
 
Quote from SethArb:

hi murray

can traders studio be used for short term intraday studies
between two or more products ?
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Can you clarify exactly what you want to do ?. You can use as many intermarkets as you want and use intra-day backtesting to test your theories. We will have real time trading and auto execution later this year.
 
Quote from Murray Ruggiero:

Intermarket market analysis can be though of as a type of instantaneous fundamental analysis. It not really meant to work on a tick by tick basis. It give you a general bias and direction. My intermarket work looks for times that these underlying relationships are moving opposite to the market you are trading. In the case of the the EFT I used earlier, if the oil stocks are risking and crude is falling you buy crude, so by definition of my rules you see the move in crude before you would looking at crude.

These relationships are not perfect but nothing is in the markets. If you can fine a system with 20% efficiency in real life you are doing good. What I mean is if you can capture 20% of the sum absolute value of all Close-Close[1] or Close-Open, that is about all you can expect for long term performance of a trading methodology using simple rule based systems.
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I can understand comparing the action between crude and oil stocks, gold vs silver, corn vs wheat etc, but why extend crude comparisons to the dollar or currencies? It would be akin to studying the movement of Cheescake Factory vs IBM; sure, both will share direction when general p/e's are rising and falling, but beyond that . . . where do you draw the line between two markets that happen to coincide once in a while, vs a direct, predictive relationship?
 
You can use a source like Tick Data Inc and output 1,5,10 minute bars in CSV format and import them into TradersStudio.
You can also use your own intra-day collected data if you can get it into CSV format.

You can use 5 minute for trading, another time frame like 45 minute bars for intermarket analysis and even combine that with daily. TradersStudio is great for mult-timeframe analysis.
 
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