Interesting thread,
@Peterma I often wonder how much an average
person trading from home can benefit
from relative strength and breadth analysis
as an edge to make short-term decisions
that prevent some losses through looking
at correlated instruments' price action:
it is sometimes difficult to interpret a
change in correlation between two or more
assets with enough time left to provide
an edge that is tradable (which also
includes avoiding bad trades).
Furthermore, it is equally arduous
to interpret what is correlation or
causation, i.e. whether it is one asset's
change of behaviour to instigate a
certain move in another or whether
it is a chance event and none
of the assets in questions leads the
other. In the case of Gold, for example,
it is tied to the Dollar, also a safe haven
of last resort, therefore in a risk-off
scenario would one interpret a USD drop
as causation of a Gold rise or the other way
round? Which one instigates and which one
follows? This is where it gets tricky.
Thoughts?