Last Updated on November 4, 2025
In futures trading, it’s easy to get tunnel vision. Many traders fixate on a single chart, be it the S&P, crude, or gold, and forget that each contract is part of a much larger web of moving parts. For funded traders, that oversight can be costly as prop firms’ rules, designed to instil discipline, are unforgiving: a couple of overlooked correlations, and you could quickly hit your daily drawdown or fail an evaluation.
That’s where intermarket analysis comes in. At its core, it’s about understanding how markets communicate with one another. For example, treasury yields don’t just influence bonds but also ripple through equity indices; a strong U.S. dollar (USD) doesn’t just affect currencies—it puts pressure on oil and gold. Learning how to recognize these relationships gives traders a broader lens, turning random price action into a more coherent story. By understanding the proper way to read cross-market signals, you can add foresight, manage risk more intelligently, and build the consistency that prop firms reward. In this article, we explain how to do it best.
What Is Intermarket Analysis – Understanding the Four Pillars Concept
Intermarket analysis is the study of how different financial markets interact with one another. Since equities, bonds, commodities, and currencies rarely move in isolation, it is essential to track their relationships and understand how developments in one market echo through others. For example, rising Treasury yields often pressure equity futures, while a strong USD usually weighs on crude oil and gold.
Technical analyst John Murphy’s Four Pillars concept is one of the most popular frameworks used for understanding the relationships between global markets. According to Murphy, the so-called four pillars include stocks, bonds, commodities, and currencies. Intermarket analysis suggests these asset classes are all interconnected, and shifts in one often predict changes in others, allowing traders to identify trends and potential reversals by analyzing their correlations. A few examples:
- Stock prices (on an index level, not as separate instruments) rise when the economy is typically thriving.
- Bond (a.k.a. fixed income) prices tend to rise when investors seek shelter, which can also be associated with periods of economic struggle, and may precede a drop in stock prices.
- Commodities, which are often inflationary instruments, can influence stocks and currencies and impact bond prices and returns.
- Currency price changes, especially across major instruments like the USD, can reflect or trigger developments in all markets by boosting commodity prices, affecting emerging market returns, debt, and more.
The bottom line is that these four asset classes are interconnected and no market moves in isolation.
Why Correlations Matter for Funded Traders
One word—context. And context is what matters the most when it comes to trading, and particularly for funded trading program participants who have to adhere to strict rules. A chart by itself only tells you what one market is doing. However, adding correlation analysis on top can explain why it might be moving that way. And most importantly, whether that move is likely to last.
In other words, traders who understand intermarket relationships aren’t just staring at price candles but connecting cause and effect. This awareness helps them avoid false signals, anticipate risks, and confirm the strength of a setup.
For example, in March 2020, during the COVID-19 market crash, stock futures were plunging daily, but the real story was in the bond and currency markets. Treasury yields plummeted to record lows as investors sought safety, and the USD surged by almost 10% in a matter of weeks. Those two signals coinciding were a harbinger of the S&P 500 hitting its eventual lows. Traders who understood these intermarket cues either tightened risk early or positioned defensively, while the speed of the decline blindsided those ignoring them.
For funded traders, the lesson is clear: ignoring correlations is a liability, and that is precisely what Earn2Trade’s Trader Career Path® and The Gauntlet Mini™ programs aim to teach you. By participating in our education tracks, you won’t master eliminating risk altogether, but you will explore how using intermarket analysis can help you trade with probabilities on your side.
In a nutshell, understanding the fundamentals of intermarket analysis and the correlations dictating the price changes across different asset classes equips funded traders with the predictive power to navigate when a change in one pillar leads to changes in the others. That way, market participants can also improve their asset allocation and sector rotation strategies, enabling investors to position their portfolios effectively. Last but not least, it grants confirmation for trends or reversals in different markets, improving the accuracy of their trading strategies.
Data-Driven Evidence: Correlations in Action
According to research from the Federal Reserve, despite a low unconditional correlation between stock and bond returns, there are strong volatility linkages between the two. For example, often, during times of market stress, the correlation between stock returns and bond yields tends to swing sharply negative. However, this isn’t always the case, as there have also been market turbulence periods when it remained strongly positive.
For example, researchers find that, before the dot-com crisis of 2000, the correlation between stocks and bonds was positive, averaging about +30%. After the dot-com crisis, it turned negative, averaging about −30%. Since the early 20th century, the correlation between stocks and bonds has generally been positive, with only three exceptions: an extended period between 2000 and 2020, and two brief periods, including one following the crash of 1929 and another following WWII. So, despite the common belief, historically, a positive correlation between stocks and bonds is the norm.
Or consider commodities and currencies—often, when the dollar strengthens due to safe-haven flows, it might cap oil rallies. Or if we take into account the Canadian dollar futures, it might be commonly seen moving in lockstep with crude because oil exports dominate Canada’s economy. However, this hasn’t always been the case, and there have been periods when the correlation has been negative.
Another interesting case is gold and its tie to real yields, which has been so consistent that many macro hedge funds use it as part of their core models. As a result, traders often check real yields for confirmation of where the price of gold is heading.
In short, correlations may fluctuate, but over the medium term, they’re powerful enough to guide decision-making and protect traders from surprise moves.
Correlations During the COVID Pandemic
During the COVID pandemic (March 2020 to be precise), the S&P lost 30%. The UK and Germany’s stock markets dropped 37% and 33%, respectively. The worst performers globally were the stock markets of Brazil (−48%) and Colombia (−47%). During that time, the prices of long-term 10-year Treasury securities also fell sharply. According to researchers, that’s the period after which the correlation between stocks and bonds turned positive. Meanwhile, while both stocks and bonds were moving in the same direction, the U.S. dollar index value increased dramatically, marking a negative correlation.
So, basically, traders were presented with a unique, chaotic situation: the dollar soared, treasuries hit record lows, and equities fell faster than at any point in modern history. What happened was that traders relying only on equity charts were overwhelmed by the speed. On the other hand, those watching bonds and currencies had context—global capital was panicking into safety. That foresight allowed them to respect risk, cut size, and preserve capital until volatility normalized.
Episodes like March 2020 show why funded traders can’t afford tunnel vision. Correlations may wax and wane in calm periods, but when stress hits, they roar back with brutal clarity.
Applying Intermarket Analysis – a Practical Framework for Funded Traders
Let’s start by making it clear: funded traders don’t need PhDs in economics, but instead practice and established blueprints for every situation. Alternatively, the key to applying intermarket analysis is to keep it structured but simple.
Start with a daily intermarket dashboard. In simplest terms, four key instruments cover most bases: 10-year Treasury yields, the U.S. dollar index, crude oil, and gold. Spend five minutes each morning checking their direction. Are yields rising or falling? Is the dollar strong or weak? Are oil and gold trending or consolidating? That snapshot provides context before you place your first trade.
Next, use correlations as filters. Suppose your strategy signals a long S&P trade. If yields are spiking, you may hold off or size smaller. Conversely, if yields are steady or falling, it might add confidence.
Timeframe discipline is also crucial. A swing trader looking at weekly correlations shouldn’t panic over a five-minute divergence. That is why it is essential to align your analysis with your holding period to avoid noise.
It is also critical to ensure that you journal your intermarket observations. Did you avoid a bad trade because oil and the dollar conflicted? Did you gain conviction in a winner because bonds confirmed your bias? Mark down your insights consistently, and you will notice that, over time, you will be able to uncover very interesting patterns that will help you identify which correlations are most important for your strategy and trading style.
Once you get things going, you can also expand the asset classes you are tracking by adding other instruments as well (especially if you are trading emerging market-specific contracts).
Correlation Analysis: Tips and Tricks for Funded Traders
When it comes to correlations, the real skill isn’t memorizing cause-and-effect but learning to interpret them in context. For example, don’t forget that, sometimes, commodities will rise on growth optimism, boosting stocks alongside them. At other times, the same commodity rally can end up sparking inflation fears, dragging stocks lower. That is why context is king, and intermarket analysis teaches traders to read the nuances.
Think of intermarket analysis as learning to drive in traffic. You’re not just watching your car, but also everything around you. If the truck in front slams on the brakes, or if a pedestrian jumps on the road, you’ll adjust, even if your lane is clear. Similarly, if Treasuries spike or the dollar surges, you adapt, even if your futures chart looks fine. On the other hand, a crude oil trader who ignores the U.S. dollar is basically guaranteed to miss half the picture.
One trick for doing this successfully is to monitor rolling correlations. Many charting platforms let you overlay correlation coefficients between two markets over time. A weakening correlation indicates that you should rely less on that relationship, while a strengthening one suggests that you can trust it more.
Another helpful practice is setting conditional alerts. For example, crude oil traders can set alerts on the dollar index: if DXY rises more than 1% intraday, crude longs warrant caution.
Also, when dealing with correlation, don’t ever be rigid in your approach. Bear in mind that correlations are like the weather—while they can often be predictable, sometimes they can become chaotic, and you will have to react on the spot.
The Pros of Mastering Intermarket Analysis for Funded Traders
As you probably know already, funded trading isn’t about hitting home runs but mostly about consistency, survival, and steady growth.
For example, over time, we have observed that traders who perform best in Earn2Trade’s Trader Career Path® and The Gauntlet Mini™ programs are those who never engage in isolated trades without context, over-leverage, or underestimate correlation risk.
Understanding and applying intermarket analysis is among the most effective tools for this, as it prevents obvious mistakes that can drain accounts. It also boosts confidence when setups align across markets and highlights hidden risks.
For funded traders, the edge is always about reducing the avoidable errors and aligning with broader flows, not about predicting the future perfectly. In that sense, we can confidently say that funded traders benefit from the discipline that intermarket analysis demands since, instead of jumping into trades blindly, they are forced to weigh conditions across asset classes. This naturally curbs overtrading and keeps one from entering low-probability setups. Over time, that discipline compounds into consistency, which is basically the very quality that prop firms value most.
That is why, every time you sidestep a bad trade or size down due to a conflicting intermarket signal, you are essentially preserving capital, which, in turn, will keep you aligned with the program’s rules and requirements. Last but not least, it buys you more trading days and gives you time to let your edge play out.
And if you decide to engage in the invaluable journey of mastering intermarket analysis, don’t forget that you won’t necessarily have more winning trades in the end. Instead, you will have fewer catastrophic losses. And in funded trading, where account survival is step one, that’s often the true edge that separates the long-term survivors from the short-lived hopefuls.
Earn2Trade’s Programs as an Arena For Mastering Intermarket Analysis
Don’t forget that intermarket analysis isn’t intended to replace your setups, but to refine them. As a result, you should never treat it as a crystal ball. Instead, think of it as a compass that will point you toward higher-probability trades and away from unnecessary risks. For a funded trader, that edge in probability is often the line between keeping and losing the account.
And before we conclude, let’s make one thing clear: when it comes to correlations, there is no universal truth. Bonds and stocks don’t correlate positively or negatively at all times. The U.S. dollar and oil can also demonstrate different correlations based on the circumstances. That is why it is critical to bear in mind that it all depends on the context (e.g., volatility, market-specific events, etc.) and not to follow advice blindly, but instead backtest your strategy in a safe environment such as Earn2Trade’s Trader Career Path® and The Gauntlet Mini™ programs.
