Key Takeaways
Spread Arbitrage Scalping
Exploits temporary price discrepancies between correlated pairs or the same pair across different time windows during high-volatility transitions.
Market Psychology
Markets are not perfectly efficient during volatility transitions. Brief pricing gaps between related instruments or time periods create arbitrage opportunities.
šStrategy Visualization
Correlated pair divergence then convergence
In-Depth Strategy Guide
Correlation trading exploits temporary misalignments between historically correlated pairs. When EUR/USD moves but GBP/USD lags, the lagging pair often catches up.
This strategy requires extremely fast execution and tight spreads. Transaction costs are the enemy - every pip of spread and commission reduces already thin profit margins.
Correlations can break down unexpectedly, especially during news events. Always use stop losses and be prepared to exit if the correlation diverges further instead of converging.
šRecommended Python Libraries
Related Indicators
š„ Entry Rules
Identify pairs with high correlation (EUR/USD vs GBP/USD)
Watch for one pair lagging the correlated pair
Enter the lagging pair in the direction of the leader
Use limit orders to ensure good entry prices
š¤ Exit Rules
Exit when correlation re-aligns (5-10 pips typically)
Close immediately if correlation diverges further
Time-based exit within 5 minutes
Fixed take profit at normal correlation level
š”ļø Risk Management
Correlation Risk
Correlations can break down - always use stops
Execution Speed
Requires fast execution - ECN broker essential
Position Sizing
Use smaller sizes due to tight profit margins
Indicators Used
Correlation Monitor
Track pair correlations in real-time
Spread Display
Monitor bid-ask spreads across brokers
Pip Value Calculator
Quickly calculate position sizes
Best Timeframes
Best Market Conditions
Common Mistakes to Avoid
Pro Tips
Educational Disclaimer
This content is for educational purposes only and does not constitute financial or investment advice. Trading involves significant risk and you may lose your capital. Always consult a licensed financial advisor before making investment decisions.
Frequently Asked Questions
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News-Based Scalping
Capitalizes on the volatility spike immediately after high-impact news releases by trading the initial momentum or the reversal that follows.
Momentum Scalping
Rides short-term momentum bursts on lower timeframes, entering when price shows strong directional movement and exiting before momentum fades.