Not the Grail, just a regular one - Bablokos!!! - page 381

 
khorosh:

Usually in pair trading, pairs with high correlation are traded. If you look at the table, you see that the correlation between EURUSD and EURGBP is only 5.1%.

And yet you are trading these pairs. What is the trick here?

I have entered the Cross - because it mirrors one of the pairs - if the pound goes down - then the cross up and there is a bump with the euro - or the pound is up - then the cross down = a bump with the pound ... or vice versa with the euro...

From top to bottom - EUR - Cross (yellow) - GBP

but... Because you can never guess where the cross will move - I've introduced two legs - 1) Yessell+Kbye and 2) Kcell+Fbye - trading in them one by one - when one leg falls off by a stop - the second leg enters the market... Small stop (about 10 pips) and 50 pips Take (about - for each instrument, depending on the volatility of the pairs - allows a fairly gentle MM - although just trading with 1 lot - gives profit... The MM with fills is just a way to increase the deposit dozens of times....

 
Aleksander:

I entered the Cross in trading - because it mirrors one of the pairs - if the pound goes down - then the cross is up and there is a skip with the euro - or the pound is up - then the cross is down = a skip with the pound... and vice versa with the euro...

So when choosing pairs to trade, it is important that there is good correlation between the majors making up the cross, while the correlation between the cross and the majors is irrelevant. Right?

 
khorosh:

So when choosing pairs to trade, it is important that there is good correlation between the majors making up the cross, while the correlation between the cross and the major is irrelevant. Right?

You know - I didn't bother with correlation - I just downloaded quotes - ran more than 5000 variants for checking schematics and chose suitable instruments by max drawdown and max lot size... So it's not easy to tell right away which pairs and exactly why I selected them... sometimes - from time to time I do a new search and if pairs remain within my limits I continue using them....

 
Aleksander:
you don't have a pre-made spread in the morning yet... and this - 1 point of cross is NOT equal to 1 pipsdollar - do a pound specific recalculation for the cross to the current bar

The top one is around here, it's probably just worth more, or the spread is higher.

and your bottom is different, very different, so I'm digging for now

 
Renat Akhtyamov:

The top one is around here, it's probably just worth more, I'll do the math. Plus the spread is higher.

and the bottom one is different, very different, so I'm digging.

yep - at first you should get something like this :)

you can see the components and the behaviour of the eqvitae in the legs


 
Aleksander:

You know - I didn't bother with correlation - I just downloaded quotes - ran more than 5000 variants and selected appropriate instruments by maximum drawdown and maximum lot size... So it's not easy to tell right away which pairs and exactly why I selected them... sometimes - from time to time I do a new search and if pairs remain within my limits I continue using them....

As far as I understand you don't trade two legs at the same time, it seems to be one leg at a time, one leg at a time?

Do you trade only the convergence of leg pairs or the divergence as well? Maybe I am wrong, but in my opinion the divergence is more profitable, because in that case we may trade in the trend of the stronger pair. But in case of a convergence it is more dangerous to trade against the direction of the pair with a strong trend.

Do you think that the correction of lots for the compensation of differences in the volatility of pairs may be done using the ratio determined as the width of the channels of the pairs being traded?

 
khorosh:

As far as I understand you don't trade two legs at the same time, but one leg at a time?

Do you trade only the convergence of leg pairs or the divergence as well? Maybe I'm wrong, but in my opinion the divergence is more profitable, because in that case we may trade in the trend of the stronger pair. In my opinion, it is more dangerous to trade a convergence, if one trades against the direction of the pair with a strong trend.

i know - one leg goes up or down - if one leg goes up then the other one catches a loss - why do you breed extra Losses - though of course you can trade legs by yourself - but the result is much worse - maximum lot in one leg increases strongly - to ward off losses of certain leg - there are days when only one (like the top) leg gives profit - and the other leg only loses - and the total balance is positive - only the first leg ... - that's the way it is (alternating profitable)

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convergence... Hmm - convergence, divergence - are just words - for convenience :) We trade Synthetic Instrument Equity (Delta) - and whether convergence (read equity goes up) or divergence (equity down) is just a way to determine the direction of the transaction - buying a leg or settling ... but changing the sum of the components does not change :)

The trend of the pair will choose the leg that will give you the profit - the other leg, even if it has opened earlier, will simply catch a loss, and "pass" the leg to the other one :) that will work off the trend of the selected currency pair .....

 
khorosh: What do you think the correction of lots for compensation of differences in volatility of pairs may be done using the coefficient determined as the ratio of channels' widths of the traded pairs?

coefficient - you can normalize price shifts by the current volatility. It can be estimated in different ways:
1. average bar range ln(High/Low) over N bars
2. price range for N bars - effectively the same as 1, only with the coefficient sqrt(N).
3. average absolute value of price shift for N bars
4. RMS of price shift for N bars.

the same APP indicator can be used in a couple of weeks... Price normalisation has already been discussed somewhere - ask Trans :) he probably remembers how to normalise lots....

Whatever you prefer :) I'll leave my method to you...

SZZ - but in general, the more daily volatility in the pair - the more "delicious" Equity :) then the profitable transactions can be caught several times a day :) in one leg or the other :
 
Aleksander:

Coefficient - you can normalise price shifts to the current volatility. It can be estimated in different ways:
1. average bar range ln(High/Low) for N bars
2. price range over N bars - effectively the same as 1, only with a coefficient of sqrt(N).
3. average absolute value of price shift for N bars
4. RMS of price shift for N bars.

the same APP indicator can be used in a couple of weeks... price normalisation has already been discussed somewhere - ask Trans :) he probably remembers how to normalise lots....

Whatever you prefer :) I'll leave my method to you...

SZZ - but in general, the more daily volatility in the pair - the more "delicious" Equity :) then the profitable transactions can be caught several times a day :) in one leg or the other :

Thanks for the info.

 
Aleksander:

Yes - one at a time - if one leg goes in + the other leg catches a moose - why breed extra moose - although you can of course trade legs by themselves - but the result is much worse - the maximum lot in the leg grows strongly - to repel the loss of a particular leg - there are days that only one (eg the top) leg gives profit per day - and another only minus - and the overall balance is carried in plus only that - first leg ... - that's the way it is (alternating profitable)

---

convergence... Hmm - convergence, divergence - are just words - for ease of perception :) We trade Synthetic Instrument Equity (Delta) - and whether convergence (read equity goes up) or divergence (equity down) is just a way to determine the direction of the transaction - buying a leg or settling ... but changing the sum of the components does not change :)

The trend of the pair will choose the leg that will give you the profit - the other leg, even if it has opened earlier, will simply catch a loss, and "pass" the job to the other leg :) that will work out the trend of the currency pair's legs .....

Thanks for the reply.