Market correlation can be a great asset to anyone's stock trading portfolio. It is crucial to know which markets and asset classes work best together for high reward and low risk opportunities. Just because two markets coincide with each other often, this does not make it suitable to use as correlation for upcoming trades. In this article I will discuss the leading indicator and how it can benefit you when trading stocks.
There is only one thing that causes the markets to move in any given direction (up, down and/or sideways) which is order flow. Order flow can be defined in many different ways but for this article we will refer to it as any order that is placed on an exchange to buy or sell an instrument. The common law of the financial market's equilibrium dictates that whomever has the most orders wins.