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Quoting FXTriumph
{quote}Is there any technical indicator that can show such moves? Can divergence between price and a sentiment indicator like CCI or MACD, or Stoch show this?
Not at all.


Quoting FXTriumph
{quote} Unhedged liquidity provided by the banks will almost always see price revert back to the mean/value where the dealers supplied the initial liquidity right? SO, if price moves up 100pips and then comes back down 100 pips, the dealers net exposure is zero. Is there any technical indicator that can show such moves? Can divergence between price and a sentiment indicator like CCI or MACD, or Stoch show this?
Price does not always come back if they correct the value besides the currency market.

IMO this picture represents the most accurate calculation of the interaction between banks and central banks.
Price/value is measured in % and is completely unweighted.
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Quoting UnnamedPlayr
{quote} Not at all. {quote} Price does not always come back if they correct the value besides the currency market. IMO this picture represents the most accurate calculation of the interaction between banks and central banks. Price/value is measured in % and is completely unweighted. {image}

Welcome back UP. So glad to see you back on your eye opening thread!!!

Is there an edge to be found in comparing the Cash Markets to the Futures markets, in the hope of trying to arb?


Also, in the interaction between banks and central banks, how do central banks hedge their counterparty risk?

And do CBs actually trade prop? Look at the SNB event of January. Some say that the SNB wanted to deliberately hunt stops and recoup all the money spent defending the 1.200 EURCHF peg in the last 4years.

Do Gold reserves and the price between the paper gold market and the actual bullion market matter in all these?

Also, is there an economic indicator, say GDP, Employment that can be graphically plotted and tracked to check for an arb/divergence oppportunity in the underlying currency
Quoting FXTriumph
{quote}Is there an edge to be found in comparing the Cash Markets to the Futures markets, in the hope of trying to arb?
Don't waste your time with that. This field is dominated by HFTs.

Quoting FXTriumph
{quote}And do CBs actually trade prop? Look at the SNB event of January. Some say that the SNB wanted to deliberately hunt stops and recoup all the money spent defending the 1.200 EURCHF peg in the last 4years.
It's called intervention and is risky. Was it worth it? Ask the SNB. ;-)

Quoting FXTriumph
{quote}Also, in the interaction between banks and central banks, how do central banks hedge their counterparty risk?
Do Gold reserves and the price between the paper gold market and the actual bullion market matter in all these?
Gold and Silver reserves matter a lot. In fact that's a crucial point among them in the price discovery.

Quoting FXTriumph
{quote}Also, is there an economic indicator, say GDP, Employment that can be graphically plotted and tracked to check for an
arb/divergence oppportunity in the underlying currency
I'm sure there is. But that would be more interesting for longer term speculators.
Quoting UnnamedPlayr
{quote} Don't waste your time with that. This field is dominated by HFTs. {quote} It's called intervention and is risky. Was it worth it? Ask the SNB. ;-) {quote} Gold and Silver reserves matter a lot. In fact that's a crucial point among them in the price discovery. {quote} I'm sure there is. But that would be more interesting for longer term speculators.
Thank you.

Can I PM you? I'd like to show you some of my findings on Gold, I found something very interesting and I need your help tweaking it.
I've been able to use precious metals to track unhedged liquidity especially on tick charts and 1minute charts. But i need advice on how best to exploit it.
Also, if one knows the dealer counterparty risk, must I trade in a particular direction? Can't I just trade the counterparty risk and the actual instrument in the same direction, like a hedge and just close all positions when the entire basket of instruments (both the counterparty instruments and the actual instruments) are in an overall profit?

Please can we skype? I have some questions to ask you and I don't want to ask them here. I've made significant progress since we first got talking 2 years back and I promise not to be a nuisance to you. Your thread changed my entire trading career and guided me to some astounding discoveries, but I still need more clues. Cheers!

PS: How relevant in your opinion is level 2 DOM to discerning unhedged liquidity, as well as price direction on an intraday basis?
I cannot comment on how UP uses these measures but here is how I use mine.

Basically I view price as a "dependant variable" and then use other measures as "independent variables". So it is by monitoring the way the my "independent variables" move, that gives me a very good idea as to how my "dependant variable"(price of security) will move.

You should trade only based on what your "independent variables" are doing and never by looking at the price of the instrument you are trading. In my own experience this is where the difficulty is. It becomes very difficult to make trades when your "independent variables" are screaming buy yet the chart does not look good. Indeed I can tell you now that some of the best trades I have made are from buying where 99% of forexfactory are screaming sell, in fact if I know that so many are trading opposite to me I will even size up more.

What I suggest is to follow the behaviour of your independents and get a good idea as to how they act generally and at market extremes etc. Its is then building a system that exploits these relationships around a sensible risk reward ratio. It is always good if you can get a good idea how to measure these independents. An example as to what I mean is this. I have one independent variable that has a hypothetical range of -500 to +500 when it becomes overextended to a level beyond +-600 I know 2 things firstly price will have a tough time continuing in that direction and secondly a reversal is likely to occur very soon. Just this one variable alone can normally let me know that a major reversal is likely to happen and it generally does this around 24 hours ahead of the rally/decline.

Just one thing to add is that the "independent variables" that you create may not take any asset pricing into account at all. They could be based on volume, open interest, put/call ratios etc.

You probably are thinking that all this entails a lot of hard work and I can tell you that it does, however the sense of satisfaction in placing trades based on information 99% of participants have no idea about is huge and in itself is a huge edge.
Quoting FXTriumph
{quote} Thank you. Can I PM you? I'd like to show you some of my findings on Gold, I found something very interesting and I need your help tweaking it. I've been able to use precious metals to track unhedged liquidity especially on tick charts and 1minute charts. But i need advice on how best to exploit it. Also, if one knows the dealer counterparty risk, must I trade in a particular direction? Can't I just trade the counterparty risk and the actual instrument in the same direction, like a hedge and just close all positions when the entire basket...
Alright. One PM let's see how it goes. :-)


Quoting FXTriumph
{quote}PS: How relevant in your opinion is level 2 DOM to discerning unhedged liquidity, as well as price direction on an intraday basis?
Most of the time the DOM doesn't give much information about that. As long as you don't know about the imbalance and they are stacking up the bids or offers and the orderflow is contrary to the price movement you would just ask yourself WTF is going on? :-))

That is how it played out today, the arb window is closed again.
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Quoting FXTriumph
{quote} Also, if one knows the dealer counterparty risk, must I trade in a particular direction? Can't I just trade the counterparty risk and the actual instrument in the same direction, like a hedge and just close all positions when the entire basket of instruments (both the counterparty instruments and the actual instruments) are in an overall profit?
When I spot that banks are serving the orderflow (clients) and they are offloading the risk (the value moves a bit lagged but simultaneously to the price (or vice versa)) I tend to trade in that same direction without any hedge.

But if there occures a gap or the lag is too much then it's the perfect opportunity for arbitrage.
Quoting UnnamedPlayr
{quote} Alright. One PM let's see how it goes. :-) {quote} Most of the time the DOM doesn't give much information about that. As long as you don't know about the imbalance and they are stacking up the bids or offers and the orderflow is contrary to the price movement you would just ask yourself WTF is going on? :-)) That is how it played out today, the arb window is closed again. {image}

Thank you!
Quoting UnnamedPlayr
{quote} When I spot that banks are serving the orderflow (clients) and they are offloading the risk (the value moves a bit lagged but simultaneously to the price (or vice versa)) I tend to trade in that same direction without any hedge. But if there occures a gap or the lag is too much then it's the perfect opportunity for arbitrage.
UP, how do you see what the banks are doing?
Interesting thread but seems to have died. With Dark Star having issues, does that infer that order flow is a non starter or is it worth continued investigation?
The road to pipland is arduous and fraught with challenge.
Quoting 4xbones
{quote} UP, how do you see what the banks are doing?
By their actions. Banks & Central Banks
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Quoting traider
Interesting thread but seems to have died. With Dark Star having issues, does that infer that order flow is a non starter or is it worth continued investigation?
Honestly, i don't know how darkstar trades or what he looks for. Order flow is general term and can lead in any direction.
I just stumbled on this old article on marketwatch.com and it reminded me of UnamedPlayer and his unique approach to value versus price trading so I decided to post it here cause I think it may be helpful to someone out there. Besides UP has been away from this particular thread of his for a while now so maybe this will elicit a response and some more insight from him. Please share something UP.

Anyways, it's amazing how some analysts/traders have been able to calculate/simulate mathematically the relationship between price versus value.

Thanks once more UP, for changing my paradigm.

Read my brief thoughts on the article here: https://mytrustfunddreams.wordpress....e-value-flows/

Read the article directly here: http://www.marketwatch.com/story/the...ion-2014-01-22
Measuring Bond yields vs Gold lack in accuracy but can be interesting for longer term speculators.
That's not what i'm looking for.

But these are the patterns what i've observed and made math. formulas off of it:

1.
There is an overall equilibrium among currencies just within the FX market!
Most of these "smaller" imbalances will be corrected on the intraday(s) level.

2.
Despite that bigger imbalances (in this case they are measured in Dollar) will occur and be corrected in the Gold and Silver market!


Hope that was clear now.
Quoting UnnamedPlayr
Measuring Bond yields vs Gold lack in accuracy but can be interesting for longer term speculators. That's not what i'm looking for. But these are the patterns what i've observed and made math. formulas off of it: 1. There is an overall equilibrium among currencies just within the FX market! Most of these "smaller" imbalances will be corrected on the intraday(s) level. 2. Despite that bigger imbalances (in this case they are measured in Dollar) will occur and be corrected in the Gold and Silver market! Hope that was clear now.
Are these intraday imbalances categorized within different types of currencies?

For example,

1. Imbalance within G7 currency pairs.

2. Imbalance within crosses.

Also, is triangular arbitrage a way to measure and arb these imbalances?

If I wanted to measure this imbalances, will I use the price of the currency pairs in my formula? And where does volume, volatility and time come in, if at all, in such a formula?

What are the variables, and what remains constant in such a formula?

Also, can Gold be used to create imbalance also? or is gold only used to correct imbalance?

For example, the gold spike downwards of yesterday, Friday 27th during the New York session, was that a correction or a creation of imbalance?

And can gold intraday imbalance be held for a week or more before it is corrected? Since one can always arb whatever imbalance exists in the actual physical bullion comex markets? I always see gold's erratic behaviour, but it is very hard to trade, IMO.

I'm surprised you included silver also. Why? Unlike gold ( which has zero practical utility value), silver has non-trading/non banking real sector utility value. Can the demand for silver for non-speculative purposes create an imbalance in the balance attempted by the financial markets? i.e Paper precious metal contracts (ETFs, CFDs), versus the real physical PM?
Quoting UnnamedPlayr
Measuring Bond yields vs Gold lack in accuracy but can be interesting for longer term speculators. That's not what i'm looking for. But these are the patterns what i've observed and made math. formulas off of it: 1. There is an overall equilibrium among currencies just within the FX market! Most of these "smaller" imbalances will be corrected on the intraday(s) level. 2. Despite that bigger imbalances (in this case they are measured in Dollar) will occur and be corrected in the Gold and Silver market! Hope that was clear now.

Also, UP, kindly read the article below:

http://www.cnbc.com/2015/11/25/why-m...t-of-year.html

This is a very important issue. Personally, I trade the IMF SDR basket. How do you think the inclusion of the Yuan in the IMF basket will change the trading dynamics for the other pairs in that basket, in terms of mathematical equilibrium and imbalance amongst those pairs with the adding of the new yuan variables. Where will you source historical data? Will you ignore the Yuan until it has sufficient past data to work your formulas with?
Quoting FXTriumph
Are these intraday imbalances categorized within different types of currencies?
For example,
1. Imbalance within G7 currency pairs.
2. Imbalance within crosses.
Yes, each major currency is measured slightly twice (with less and all) against the others to spot intraday value imbalances.

Quoting FXTriumph
Also, is triangular arbitrage a way to measure and arb these imbalances?
No. Because these kind of imbalances are corrected within milliseconds by (Banks) HFTs.

Quoting FXTriumph
If I wanted to measure this imbalances, will I use the price of the currency pairs in my formula? And where does volume, volatility and time come in, if at all, in such a formula? What are the variables, and what remains constant in such a formula?
You can only do it with the price and how you weight each instrument. Volume and volatility are useless.

Quoting FXTriumph
Also, can Gold be used to create imbalance also?
Yes, absolutely.

Quoting FXTriumph
Or is gold only used to correct imbalance?
No.

Quoting FXTriumph
And can gold intraday imbalance be held for a week or more before it is corrected?
Yes, absolutely.

Quoting FXTriumph
I'm surprised you included silver also. Why?
Because CBs do both.

Quoting FXTriumph
Can the demand for silver for non-speculative purposes create an imbalance in the balance attempted by the financial markets? i.e Paper precious metal contracts (ETFs, CFDs), versus the real physical PM?
ETFs,maybe. CFDs i doubt it.

Quoting FXTriumph
Also, UP, kindly read the article below:
http://www.cnbc.com/2015/11/25/why-m...t-of-year.html

This is a very important issue. Personally, I trade the IMF SDR basket. How do you think the inclusion of the Yuan in the IMF basket will change the trading dynamics for the other pairs in that basket, in terms of mathematical equilibrium and imbalance amongst those pairs with the adding of the new yuan variables. Where will you source historical data? Will you ignore the Yuan until it has sufficient past data to work your formulas with?
I haven't put the Yuan in my equations yet. Because of various political reasons (US superpower vs Russia,China) etc.
Thanks UP.
Quoting UnnamedPlayr
It doesn't need a video to explain some basic correlations and inefficiencies. If you are looking for something very easy or to increase the odds most of the time here is a very simple calculation. Everybody knows: EUR/AUD = 50% EUR/USD and -50% AUD/USD But you can also do something interesting like that: Red line: 0.5 EUR/AUD and -0.5 AUD/USD Have fun: {image}
I've been looking at this again. This particular suggestion. Please how did you create this as an MT4 chart? I really would like to be able to have an indicator like this based on these inputs, something similar to the MT4 overlay indicator here: http://www.forexfactory.com/showthread.php?t=4751

Please can you give me this indicator if it exists as an overlay indi? If not, please how can i create it?
I think this USDX indicator would do the job, too.

http://www.earnforex.com/metatrader-indicators/USDX

It allows you to build new synthetics, change the IndexCoefficients (Weightings) and IndexInitialValue.

Have fun.
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