[billbss]

Here is something I have been noticing for quite a while, and thought it time I got serious about it.

This is trading divergence between two highly correlated pairs.

I find the correlated pairs at
http://www.mataf.net/en/tools/correlation-table
I use the daily correlation chart.

Presently these pairs have a correlation factor of >80

EUR/USD - EUR/CHF
USD/JPY - EUR/JPY - GBP/JPY
EUR/USD - USD/CHF (Negative correlation)




The chart below shows the EUR/JPY and the GBP/JPY, together.
Basically, if one pair makes a lower low and the other does not, you buy the one that does not.

If one pair makes a higher high and the other does not, sell the pair that does not.

I wait until both pairs have turned in the direction of the trade, before entering.

On the charts, I have removed the candles/bars and replaced them with a Simple MA, 1 period, typical price.
This gets rid of the whiskers and a lot of the noise. Also, it works and I like it

I used a 14 ATR x 2 as both the SL and TP.

I chose this at random. It can be improved upon.

I used a 4H time frame. It can be traded on any time frame.



Here are the results of the chart shown.

8W - 0L
Total profit = 1640 pips.

This is from Feb.25, 2009 through last Friday.

Any questions and suggestions are welcome.
I'm sure it can be improved upon.
Also, double check my results. I may have overlooked some trades. If I did, I will correct the results.

I don't want any EAs or indicators or filters. This one will stand on its own.

[$aly]

thank U
and it seems great
bill...you test it only one day????

[Mister ED]

How are you calculating the correlation based on the 1 hour and daily figures when you are trading on a 4 hour chart?

For example on the hourly chart the coreelation between EURUSD and GBPJPY is good at 95.5 but on the daily it is quite low at 14.0

Looks an interesting system.

Mister ED

[Ace284]

This strategy seems to looks right through the pair and correlates it with another similar one. Pretty interesting find you've got here. Will follow this thread.

One obvious downside with this is that, your eyes have to be glued onto the screen on both pairs to notice a setup. I'm not an expert with Metatrader 4 indicator coding though im learning. I think it would be handy to hear an alert when a setup presents itself.

Billbss I see on your post where it says no indicators but a simple alert for the system should be again useful

[billbss]

Originally Posted by Mister ED

How are you calculating the correlation based on the 1 hour and daily figures when you are trading on a 4 hour chart?

For example on the hourly chart the coreelation between EURUSD and GBPJPY is good at 95.5 but on the daily it is quite low at 14.0

Looks an interesting system.

Mister ED

If I'm trading a 4H chart, I'll use the daily table.
If I trade lower than that, I use the Hourly.
The hourly correlated pairs, seem to change correlation a lot.

The best thing to do is list the correlated pairs from each chart. Look at their charts and see if they look like each other. If they do- trade them.

[billbss]

Originally Posted by Ace284

This strategy seems to looks right through the pair and correlates it with another similar one. Pretty interesting find you've got here. Will follow this thread.

One obvious downside with this is that, your eyes have to be glued onto the screen on both pairs to notice a setup. I'm not an expert with Metatrader 4 indicator coding though im learning. I think it would be handy to hear an alert when a setup presents itself.

Billbss I see on your post where it says no indicators but a simple alert for the system should be again useful

I've never seen an indicator that can accurately detect divergence.
Usually, just a look at the charts being traded, will tell you if a set up is possible in the near future.

One indicator, I would like to have is something to invert a chart- flip it upside down.
That would make it possible to trade EUR/USD - USD/CHF.

I have one somewhere, but I be darned if I can find it.

[billbss]

Originally Posted by $aly

thank U
and it seems great
bill...you test it only one day????

The chart I posted is for a month.

[BenQ]

Hey Bill, I read you don't want any indis, but I have one that allows you to place two different pair on the same chart. It's useful to me for correlated trading. If you want, I'll post.

Also, some excellant dashboards can be made that will signal for you when different pairs are out of synch. I'm not talking about any kind of filter junk, just informational applications. Are you open to those being developed and posted?

[billbss]

Originally Posted by BenQ

Hey Bill, I read you don't want any indis, but I have one that allows you to place two different pair on the same chart. It's useful to me for correlated trading. If you want, I'll post.

Also, some excellant dashboards can be made that will signal for you when different pairs are out of synch. I'm not talking about any kind of filter junk, just informational applications. Are you open to those being developed and posted?

Sure. I just don't want to load it down with MAs, MACDs fibs, pivots etc.

What you describe may be helpful.

[hoki]

BenQ can you please post that indi you mentioned?

[BenQ]

Originally Posted by billbss

Sure. I just don't want to load it down with MAs, MACDs fibs, pivots etc.

What you describe may be helpful.

ok, here's second chart courtesy of Serega Lykov. Place it on gbpjpy H4, for example, and enter eurjpy and 240 in the inputs and you'll have both on the same chart. I have a few others, and also one that does an inversion like you asked, but I have to dig those out.

[billbss]

Originally Posted by BenQ

ok, here's second chart courtesy of Serega Lykov. Place it on gbpjpy H4, for example, and enter eurjpy and 240 in the inputs and you'll have both on the same chart. I have a few others, and also one that does an inversion like you asked, but I have to dig those out.

Thank you very much.
That will be helpful.

[hoki]

I think its better to use two different graphs.. but the inversion indi can be still useful.

[Pipsqueak4x]

Originally Posted by BenQ

ok, here's second chart courtesy of Serega Lykov. Place it on gbpjpy H4, for example, and enter eurjpy and 240 in the inputs and you'll have both on the same chart. I have a few others, and also one that does an inversion like you asked, but I have to dig those out.

Thank you very much. I have scoured the forums, both Russian and here, but finally this is one of the most looked after indies I have wanted (I am a very mediocre wannabe programmer) and can basically only edit the code, but not knit it all together, like the professional coders who donate to these forums so graciously. Thanks for sharing Serega's indi with us. I'll work magic with this one.......... Ciao Ciao

[fxdoing]

Bill,
Thanks for this thread.
Could you put more examples here?

Bob