Forex Correlation Theory - page 2
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Well, must admit - didn't try Kendall and Spearman correlations (due to some MT4/MT5 limitations), but have a sneaking suspicion overall output would be no different.
Thats odd correlations is my second greatest strategy.
What's the first?
Good question.
It's Manual Trading.
Good question.
It's Manual Trading.
You just trashed it by saying:
Free advice - don't waste your time.
This is the worst thing you can say about a trading system.
And shortly after this you admit you did not try it all, which makes me think, what have you tried ...? And then why did you even say it ?
The problem is that people read it and may discard it based upon your words, it's very destructive.
But i have given an example already:
Heres some quick examples:
EURAUD * AUDUSD = EURUSD
1.4065 * 0.9335 = 1.3130
EURCAD / USDCAD = EURUSD
1.4273 / 1.0870 = 1.3130
EURCHF / USDCHF = EURUSD
1.2070 / 0.9192 = 1.3130
EURGBP * GBPUSD = EURUSD
0.7903 * 1.6613 = 1.3130
EURJPY / USDJPY = EURUSD
137.01 / 104.34 = 1.3130
This is called:
Pythagorean Theorem
Named after the ancient Greek mathematician Pythagoras (c. 570 – c. 495 BC)
Now i will expand on this because numbers do not trigger the same trading ideas as visual representations.
So here it is visually:
This image represents those numbers in a visual way and immediately you can spot things.
For example CHF is low, this means it has the highest odds (out of these 5) to move back up.
It is less likely that all the other 5 will move towards the one lower.
On the other hand, JPY is the highest so it has the highest odds (Potential) of moving back down shortly.
Then you look at all the spreads and make sure you only enter on the best deals.
Of course this is just a tiny element that is bundled into a much larger system,
So my question is,
Did you try this specific correlation strategy ?
So here it is visually:
Of course this is just a tiny element that is bundled into a much larger system,
So my question is,
Did you try this specific correlation strategy ?
Correlation strategy that starts with collecting Tick-volumes - No, I didn't try.
If you believe it can be profitable - great, wishing your best of luck.
You may find usefull to see all possible 3-way-combinations that I have checked (below).
NOTE: markets are perfect - any tiny disbalance gets caught by big sharks =))
1 AUDCAD CADJPY AUDJPY
2 AUDCAD EURCAD EURAUD
3 AUDCAD GBPCAD GBPAUD
4 AUDCAD USDCAD AUDUSD
5 AUDCHF CHFJPY AUDJPY
6 AUDCHF EURCHF EURAUD
7 AUDCHF GBPCHF GBPAUD
8 AUDCHF USDCHF AUDUSD
9 AUDJPY CADJPY AUDCAD
10 AUDJPY CHFJPY AUDCHF
11 AUDJPY EURJPY EURAUD
12 AUDJPY GBPJPY GBPAUD
13 AUDJPY NZDJPY AUDNZD
14 AUDJPY USDJPY AUDUSD
15 AUDNZD EURNZD EURAUD
16 AUDNZD GBPNZD GBPAUD
17 AUDNZD NZDUSD AUDUSD
18 AUDUSD EURUSD EURAUD
19 AUDUSD GBPUSD GBPAUD
20 AUDUSD USDCAD AUDCAD
21 AUDUSD USDCHF AUDCHF
22 AUDUSD USDJPY AUDJPY
23 CADJPY AUDJPY AUDCAD
24 CADJPY EURJPY EURCAD
25 CADJPY GBPJPY GBPCAD
26 CADJPY USDJPY USDCAD
27 CHFJPY AUDJPY AUDCHF
28 CHFJPY EURJPY EURCHF
29 CHFJPY GBPJPY GBPCHF
30 EURAUD AUDCAD EURCAD
31 EURAUD AUDCHF EURCHF
32 EURAUD AUDJPY EURJPY
33 EURAUD AUDNZD EURNZD
34 EURAUD AUDUSD EURUSD
35 EURAUD GBPAUD EURGBP
36 EURCAD AUDCAD EURAUD
37 EURCAD CADJPY EURJPY
38 EURCAD GBPCAD EURCAD
39 EURCAD USDCAD EURUSD
40 EURCHF AUDCHF EURAUD
41 EURCHF CHFJPY EURJPY
42 EURCHF GBPCHF EURGBP
43 EURCHF USDCHF EURUSD
44 EURGBP GBPAUD EURAUD
45 EURGBP GBPCAD EURCAD
46 EURGBP GBPCHF EURCHF
47 EURGBP GBPJPY EURJPY
48 EURGBP GBPNZD EURNZD
49 EURGBP GBPUSD EURUSD
50 EURJPY AUDJPY EURAUD
51 EURJPY CADJPY EURCAD
52 EURJPY CHFJPY EURCHF
53 EURJPY GBPJPY EURGBP
54 EURJPY NZDJPY EURNZD
55 EURJPY USDJPY EURUSD
56 EURNZD AUDNZD EURAUD
57 EURNZD GBPNZD EURGBP
58 EURNZD NZDJPY EURJPY
59 EURNZD NZDUSD EURUSD
60 EURUSD AUDUSD EURAUD
61 EURUSD GBPUSD GBPUSD
62 EURUSD NZDUSD EURNZD
63 EURUSD USDCAD EURCAD
64 EURUSD USDCHF EURCHF
65 EURUSD USDDKK EURDKK
66 EURUSD USDJPY EURJPY
67 EURUSD USDNOK EURNOK
68 EURUSD USDSEK EURSEK
69 GBPAUD AUDCAD GBPCAD
70 GBPAUD AUDCHF GBPCHF
71 GBPAUD AUDJPY GBPJPY
72 GBPAUD AUDNZD GBPNZD
73 GBPAUD AUDUSD GBPUSD
74 GBPAUD EURAUD EURGBP
75 GBPCAD AUDCAD GBPAUD
76 GBPCAD CADJPY GBPJPY
77 GBPCAD EURCAD EURGBP
78 GBPCAD USDCAD GBPUSD
79 GBPCHF AUDCHF GBPAUD
80 GBPCHF CHFJPY GBPCHF
81 GBPCHF EURCHF EURGBP
82 GBPCHF USDCHF GBPUSD
83 GBPJPY AUDJPY GBPAUD
84 GBPJPY CADJPY GBPCAD
85 GBPJPY CHFJPY GBPCHF
86 GBPJPY EURJPY EURGBP
87 GBPJPY NZDJPY GBPNZD
88 GBPJPY USDJPY GBPUSD
89 GBPNZD AUDNZD GBPAUD
90 GBPNZD EURNZD EURGBP
91 GBPNZD NZDJPY GBPJPY
92 GBPNZD NZDUSD GBPUSD
93 GBPUSD AUDUSD GBPAUD
94 GBPUSD EURUSD EURGBP
95 GBPUSD NZDUSD GBPNZD
96 GBPUSD USDCAD GBPCAD
97 GBPUSD USDCHF GBPCHF
98 GBPUSD USDJPY GBPJPY
99 NZDJPY AUDJPY AUDNZD
100 NZDJPY EURJPY EURNZD
101 NZDJPY GBPJPY GBPNZD
102 NZDJPY USDJPY NZDUSD
103 NZDUSD AUDUSD AUDNZD
104 NZDUSD EURUSD EURNZD
105 NZDUSD GBPUSD GBPNZD
106 NZDUSD USDJPY NZDJPY
107 USDCAD AUDCAD AUDUSD
108 USDCAD CADJPY USDJPY
109 USDCAD EURCAD EURUSD
110 USDCAD GBPCAD GBPUSD
111 USDCHF AUDCHF AUDUSD
112 USDCHF CHFJPY USDCHF
113 USDCHF EURCHF EURUSD
114 USDCHF GBPCHF GBPUSD
115 USDDKK EURDKK EURUSD
116 USDJPY AUDJPY AUDUSD
117 USDJPY CADJPY USDCAD
118 USDJPY CHFJPY USDCHF
119 USDJPY EURJPY EURUSD
120 USDJPY GBPJPY GBPUSD
121 USDJPY NZDJPY NZDUSD
122 USDNOK EURNOK EURUSD
123 USDSEK EURSEK EURUSD
Marco, how did you get those numbers in the screen, which differ from what you pasted as text quote? Do you mean they are USD cross-rates, and you are after two pairs with largest spread on synthetic EURUSD? Then this is a scalping strategy, isn't it?
That text example is related to a fixed EURUSD value it has little to do with the screenshot.
The screen is a real life scenario which displays the minor differences in between.
I am after the two pairs with the lowest spread these happened to be EURJPY and USDJPY last week.
It could be considered scalping but that depends on the position sizes.
You can run it shortly with large lotsizes, but it also works very well with 0.01 or 0.1 and longer running combo's.
The beauty of it is the safe haven it creates you can set it up in several ways.
For example you can set it up in a way, that it will be profitable in both directions, the only requirement that has to be made is a asymmetric move in either one direction.
Those occur on a regular basis, or you can set it up to be more profitable in one direction while still using the mirrored currency as a compass.
Tiny details are what make all the difference, when both become profitable you can trail both positions as far as possible.
When one becomes profitable but the other shows a slight loss but the combined position is positive you can also trail that if you know how.
Another setup i love to do is trading bidirectional at the same time in both directions but this requires you to learn those skills since you have to know what to look for.
And in case they both get over 5% risk you simply close the both of them and restart the process at the next time node.
Correlation strategy that starts with collecting Tick-volumes - No, I didn't try.
If you believe it can be profitable - great, wishing your best of luck.
You may find usefull to see all possible 3-way-combinations that I have checked (below).
NOTE: markets are perfect - any tiny disbalance gets caught by big sharks =))
This strategy only looks at tick volumes to discriminate between fast and slower moving markets.
This is combined with the trend strength to further discriminate between steady one way trends, and trends with a more limited amplitude.
Then the spreads are compared to calculate the final decision, a combination of the highest volumes, preferably in the same direction, with the lowest spread.
Then these results are sorted, and combinations are calculated to discover the higher odds cross combinations with the best set of conditions.
There is a difference between blindly opening a multi symbol hedge position, and calculating every aspect to pick the one that has the highest probability on a successful outcome.
In the beginning i saw great losses which made no sense at all, but i never gave up on the strategy and improved it over the years,
Up to the point where it produces acceptable performance, of a quality that i find difficult to reproduce with any other given strategy.