Hedge and Correlation Strategy - page 3
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poruchik, the overlay-chart indicator always shows usdjpy pair along with the main pair you chose. Is there a way to change usdjpy to other pairs?
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This thread sparked my interest a couple of weeks ago, and I have been testing it for the past week. You can see the results here.
I have not had a Stop Loss for any trades, and I have simply gone with the blind faith that the pairs will come back together. I would never ever do this on a live account!
Even though I am in profit, I have no feel for the system, and at this point I don't trust it. But, having said that, I am going to continue to test it over the next week, and if I still like it, I will put in some rules around the trades, and test that under a different demo account.
Game on!
My testing of this system over the past 2 weeks has been profitable, and I am up 234 pips. The results and the trades taken are available from the link in my previous post.
I am about to start another 2 weeks of testing, and I am going to deviate from @dreamliner's system a bit by using a Stop Loss, and I will be using different tools.
Here is my plan.
Tools
1. _Correlation IND CHARTlite2.1 (a slightly modified version) - setting the start date to the previous Wednesday 8am.
2. Forex Correlation - Mataf.net - get the pairs with a high Daily correlation
3. MPTManager EA for setting Stop Loss. 150 Pips max loss per basket, this is a bit of a guess, I don't know what the best S/L is yet.
Collelation pairs I will be monitoring/trading over the next 2 weeks are:
AUDUSD - EURUSD
AUDUSD - NZDUSD
GBPUSD - GBPJPY
USDJPY - GBPJPY
AUDUSD - AUDJPY
AUDUSD - EURUSD is ready to open a trade as it has a 114 pip gap, short AUD/USD, Long EUR/USD. I will be looking at closing them when the gap is under 30 pip difference.
The live results are available at System Correlation II | Myfxbook
I would welcome comments and constructive criticism.
@dreamliner, are you still trading this system? If so, I would like to hear how you are doing with this it.
Still Trading...
Hello Retzel,
Yes, I'm still trading this system, though over time I've had to modify it. The reason is because of something an earlier poster said, which I've found to be true as well.
"In reviewing your system I have noticed that there is a diffrence between the price scales of the traded currencies. If the Eur/Usd is winning against the Gbp/Usd, when they eventually cross the trade could possibly (depending on the distance in the gap when first traded) be negative as the Gbp/Usd has moved a greater distance across the chart in comparison to the Eur/Usd. If the Gbp/Usd is the winning trade then the potential profit could be greater than the intial gap on entry. There MUST be a big gap on entry."
This is true. Even if there is a HUGE gap on entry, that gap can prove to be teensy tiny compared with earlier gaps. The point is, even if you enter with a huge gap, the gap may just keep getting bigger and bigger, and pretty soon you've discovered that the gap looks very small when shown in context with its historical gaps.
Additionally, if you get in on a huge gap and the market changes as you were expecting, the gap can narrow, and even cross, yet you are not in profit. I've had several times where the gap fully crosses, and even widens into a gap the other direction, and I was still not in profit. I'm no techie, but obviously the way that the gaps are drawn has everything to do with profitability in trading this system.
So I've discovered what seems to be a better way, just recently. What I do is trade highly negatively correlated pairs (EUR/USD and USD/CHF for example) and I enter at the moment of the cross, anticipating the cross continuing to widen. If it does not, but instead the pairs cross back over in the previous direction I close the trade. This makes a limited loss with an unlimited profit potential.
My only problem is determining where to exit, and to be honest I really have no idea where to exit. I've been playing around with different ideas but so far have not come up with anything. But in reality, this is a pretty good problem to have: determining to exit with a little profit or a big one.
Any thoughts?
Hey Dreamliner,
A possibility is to base your exit on a correlation study using Standard deviation.
Many professional traders use "Overshoot" models to define a entry and or exit point- this would be a good direction for you to begin developing an exit strategy.
Cheers,
Hello Retzel,
Yes, I'm still trading this system, though over time I've had to modify it. The reason is because of something an earlier poster said, which I've found to be true as well.
"In reviewing your system I have noticed that there is a diffrence between the price scales of the traded currencies. If the Eur/Usd is winning against the Gbp/Usd, when they eventually cross the trade could possibly (depending on the distance in the gap when first traded) be negative as the Gbp/Usd has moved a greater distance across the chart in comparison to the Eur/Usd. If the Gbp/Usd is the winning trade then the potential profit could be greater than the intial gap on entry. There MUST be a big gap on entry."
This is true. Even if there is a HUGE gap on entry, that gap can prove to be teensy tiny compared with earlier gaps. The point is, even if you enter with a huge gap, the gap may just keep getting bigger and bigger, and pretty soon you've discovered that the gap looks very small when shown in context with its historical gaps.
Additionally, if you get in on a huge gap and the market changes as you were expecting, the gap can narrow, and even cross, yet you are not in profit. I've had several times where the gap fully crosses, and even widens into a gap the other direction, and I was still not in profit. I'm no techie, but obviously the way that the gaps are drawn has everything to do with profitability in trading this system.
So I've discovered what seems to be a better way, just recently. What I do is trade highly negatively correlated pairs (EUR/USD and USD/CHF for example) and I enter at the moment of the cross, anticipating the cross continuing to widen. If it does not, but instead the pairs cross back over in the previous direction I close the trade. This makes a limited loss with an unlimited profit potential.
My only problem is determining where to exit, and to be honest I really have no idea where to exit. I've been playing around with different ideas but so far have not come up with anything. But in reality, this is a pretty good problem to have: determining to exit with a little profit or a big one.
Any thoughts?Yes, that sounds good. Possibly this might be as simple as a Stochastic overbought/oversold too.
Hey Dreamliner,
A possibility is to base your exit on a correlation study using Standard deviation.
Many professional traders use "Overshoot" models to define a entry and or exit point- this would be a good direction for you to begin developing an exit strategy.
Cheers,Thanks Dreamliner,
I appreciate your advice and this does seem like a better way of trading this system, and it would avoid the very big DD that I experienced.
I will experiment a bit over the next couple of weeks, and see how it goes.
Cheers
So I've discovered what seems to be a better way, just recently. What I do is trade highly negatively correlated pairs (EUR/USD and USD/CHF for example) and I enter at the moment of the cross, anticipating the cross continuing to widen. If it does not, but instead the pairs cross back over in the previous direction I close the trade. This makes a limited loss with an unlimited profit potential.
Dreamliner: I know this thread is old by now, but I came across it. In the dailyfx.com charts, if you right click on a chart you can choose "Relative To". I think this option might help you with your original strategy. Either that or zoom out to the maximum level.
Dreamliner: I know this thread is old by now, but I came across it. In the dailyfx.com charts, if you right click on a chart you can choose "Relative To". I think this option might help you with your original strategy. Either that or zoom out to the maximum level.
Thank you for posting. I just tried this. How would this help? I can't seem to figure out any strategy by looking at this "relative to" chart. Any ideas?
NO IDEA
I think he used it once or twice and make money in that market scenario
is it mathematical proven -- for correlation, dunno
=========
in term of Personal statistics
fx is about balancing of Certainty , overall profit, overall loss and # of transaction used -
what we can adjust would be (assume our habit and mindset won't change)
DIRECTION during entry
high / low frequency transaction
emotion towards profit and loss -- this is human nature and the main reason why we loss - small discounted profit (like supermarket price) while forex move like the YACHT / private Jet price == not a product price variation in walmart