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Hedging THE HEDGE!

  • #61
  • Dec 22, 2007 6:16pm Dec 22, 2007 6:16pm
hi so if u are hedging the hedge....how will u make profit ?

also theres too many assumptions here, u would need to calculate correlation from a longer period of data....and find out the likliehood of all four pairs going "berserk" - may kill any edge u have.


also, what do u mean "oversold" "overbought" do u mean when a ratio1 and ratio 2 hit upper and lower bands of bollinger band ?
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  • #62
  • Dec 22, 2007 7:25pm Dec 22, 2007 7:25pm
Quoting c0d3
50% profit on investment reached, quick!

50 pip, gain.
50 pip gained, without risk.. is this the holy grail?
  • #63
  • Dec 22, 2007 8:52pm Dec 22, 2007 8:52pm
Hi, i was thinking again about it, u wroted:
To LONG ratio1, buy eurusd and buy usdchf.
To LONG ratio2 , buy gbpusd and sell audusd.

So, u have:

buy eur-chf
buy gbp-aud

(u've done these operations, but paying more spread)

Essentialy it seems to be an overbought/oversold indicator, and as all the overbought/oversold indicators it can give good signals and bad signals, all depend on market (ranging or trending).
What do you think about?
  • #64
  • Dec 22, 2007 10:05pm Dec 22, 2007 10:05pm
Quoting jjk2
hi so if u are hedging the hedge....how will u make profit ?

also theres too many assumptions here, u would need to calculate correlation from a longer period of data....and find out the likliehood of all four pairs going "berserk" - may kill any edge u have.


also, what do u mean "oversold" "overbought" do u mean when a ratio1 and ratio 2 hit upper and lower bands of bollinger band ?
U can make the profit from correlation, it is not always perfect, and correct entries are important like any other system. Correlation for ratio1 and ratio2 is calculated for 15m, 30m, 1h, 4h, 1d on 30,90,180 periods.

yes oversold, overbought, is the ratio of (ratio1/ratio2([eurusd/usdchf] / [gbpusd/audusd])) is touching upper or lower bands.
  • #65
  • Dec 22, 2007 10:07pm Dec 22, 2007 10:07pm
Quoting tunera
50 pip gained, without risk.. is this the holy grail?

Not sure if it is holy grail, there is always risk. The main thing is to study the entries, that is my biggest problem, which is the same, i assume for everyone.
  • #66
  • Dec 22, 2007 10:11pm Dec 22, 2007 10:11pm
Quoting tunera
Hi, i was thinking again about it, u wroted:
To LONG ratio1, buy eurusd and buy usdchf.
To LONG ratio2 , buy gbpusd and sell audusd.

So, u have:

buy eur-chf
buy gbp-aud

(u've done these operations, but paying more spread)

Essentialy it seems to be an overbought/oversold indicator, and as all the overbought/oversold indicators it can give good signals and bad signals, all depend on market (ranging or trending).
What do you think about?
Well in my opinion, when you hedge eurusd with usdchf, you are in a dollar neutral situation, same with gbpusd and audusd. I'm not sure about the eur-chf and gbp-aud. Yes, the i do pay the spread, but i'm not concerned with it, as correlation changes.

I have read many papers on pairs-trading, and overbought/oversold is a bit different in this case, since you are dealing with two pairs(eurusd, usdchf). The market does need to be studied to make sure you get the good signals and good entries. I have problems with entries, all my entry decisions are based on classical mean-reversion principals, it's all mechanical.
  • #67
  • Dec 23, 2007 12:14am Dec 23, 2007 12:14am
what if both ratios hit upper band, and penetrate, continuing to go upwards.
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  • #68
  • Edited 1:58pm Dec 23, 2007 12:42am | Edited 1:58pm
Thanks c0d3. for the thread. It is a good read. I still can not get some of the indicators to work. Can you please post your template. with the settings you use. Thanks. Jatki24300
  • #69
  • Dec 23, 2007 11:43am Dec 23, 2007 11:43am
Quoting jjk2
what if both ratios hit upper band, and penetrate, continuing to go upwards.
then the ratio of ratio1/ratio2 will not hit upper/lower band, it will stay near the mean.

It is just like eurusd and gbpusd, both hitting upper bands, unless one of the pairs goes higher in price and becomes overvalued or undervalued, then you would enter.
  • #70
  • Dec 23, 2007 11:45am Dec 23, 2007 11:45am
Quoting jatki24300
Thanks c0d3. for the thread. It is a good read. I still can not get some of the indicators to work. Can you please post your temp. with the settings you use. Thanks. Jatki24300
i do not understand what you mean by temp.

Can you tell me which indicators you are having problems with?
  • #71
  • Dec 23, 2007 4:46pm Dec 23, 2007 4:46pm
Quoting jatki24300
Thanks c0d3. for the thread. It is a good read. I still can not get some of the indicators to work. Can you please post your template. with the settings you use. Thanks. Jatki24300
Ok, i figured out what you mean!

I posted the indicator template on original post!
  • #72
  • Apr 25, 2008 9:54am Apr 25, 2008 9:54am
Hello,

Well passed 6 months from last post.

Would anyone update on this correlations indicators? Hows results.
  • #73
  • Jul 8, 2008 4:28pm Jul 8, 2008 4:28pm
Anybody still interested in discussing or are everybody making big pips and not interested in sharing?
  • #74
  • Jul 14, 2008 7:01am Jul 14, 2008 7:01am
Yes, would like to hear any news out there on this.

Lenoxer
  • #75
  • Oct 21, 2008 6:56am Oct 21, 2008 6:56am
Quoting SwingMan
A new version with harmonic time frames and with harmonic weighting factors (see post #37).
The calculation is performed only for the last 1000 bars, and the matrix is actualised only for new bars.
This was...
Hi all,
I am new in Forex trading and Forex strategy.
This post is very interesting. I would like to known if you have some new regarding this and if you are still using this strategy.
I am looking for some hedge strategy ... some suggestion?

Regards,
Michele Ainardi
  • #76
  • Oct 21, 2008 12:30pm Oct 21, 2008 12:30pm
Quoting ainardi
Hi all,
I am new in Forex trading and Forex strategy.
This post is very interesting. I would like to known if you have some new regarding this and if you are still using this strategy.
I am looking for some hedge strategy ... some suggestion?

Regards,
Michele Ainardi
Hey, forget this strategy, old news!!!

There is a ex hedge fund manager that shared his hedging strategy, you can read all about it in the following post:
http://www.forexfactory.com/showthread.php?t=95721

Now, that i think about it, you can learn his strategy and "hedge the hedge" in different directions with 4 pairs, 2 currency pairs in each hedge. I will think about that, and might post some rules here if they make sense.
  • #77
  • Oct 22, 2008 4:56am Oct 22, 2008 4:56am
Quoting c0d3
Hey, forget this strategy, old news!!!

There is a ex hedge fund manager that shared his hedging strategy, you can read all about it in the following post:
http://www.forexfactory.com/showthread.php?t=95721

Now, that i think about it, you can learn his strategy and \"hedge the hedge\" in different directions with 4 pairs, 2 currency pairs in each hedge. I will think about that, and might post some rules here if they make sense.
Ciao Cd03,
thank you .. I will read this new post .. long post .. I need time.
Thank you !!

Michele.
  • #78
  • Oct 23, 2008 4:12am Oct 23, 2008 4:12am
Dear Cdo3,

Looking foward to hearing some rules on those four pairs.

Thanks,

Lenoxer
  • #79
  • Oct 23, 2008 9:01pm Oct 23, 2008 9:01pm
I think i got it, i'm developing an EA to display everything, and i'm working on some rules on entry for the 4 pairs, eurusd, gpbusd, usdchf, audusd...
  • #80
  • Edited 12:40pm Oct 24, 2008 12:46am | Edited 12:40pm
Alright, attached is the EA and the correlation indicator for 4 pairs, EURUSD, USDCHF, GBPUSD, AUDUSD.

The correlation indicator basically specifies how the pairs are moving related to each other, in this case (EURUSD/USDCHF) vs (GBPUSD/AUDUSD). In the attached image, you can see that the correlation is around -0.7, which means that when the ratio of (EURUSD/USDCHF) is going up, the other ratio (GBPUSD/AUDUSD) is going down, negative correlation. This negative correlation is the same characteristics that EURUSD and USDCHF have, they move in opposite directions, with negative correlation. At the moment, the EA does not trade, it only displays the necessary information for trading.

The EA displays the following, as a comment:

EURUSD deviation:
USDCHF deviation:
GPBUSD deviation:
AUDUSD deviation:

EURUSD USDCHF Pair Deviation:
EURUSD GPBUSD Pair Deviation:
EURUSD AUDUSD Pair Deviation:
USDCHF GBPUSD Pair Deviation:
GBPUSD AUDUSD Pair Deviation:
USDCHF AUDUSD Pair Deviation:


Based on the SPIELER thread, you LONG the EURUSD and USDCHF hedge when the EURUSD USDCHF Pair Deviation is negative, in 0.25% increments. Also, SHORT if deviation is positive, and this is with negative correlation.

Here is where i need some advice, if i were to hedge the hedge, i know that
(EURUSD/USDCHF) vs (GBPUSD/AUDUSD) ratios have negative correlation, so if I LONG the EURUSD USDCHF hedge, what positions do i take with GBPUSD and AUDUSD, since the ratio is moving the opposite directions?

My best guess, is to look at which currency is underperforming and overperforming when making the hedge for the hedge with GBPUSD and AUDUSD to covert EURUSD and USDCHF. But that would mean i would be hedging just GBPUSD with AUDUSD, and not necessarily EURUSD and USDCHF, since i'm following the classic mean-reversion entries.

Here is what is known, negative correlation between (EURUSD/USDCHF) and (GBPUSD/AUDUSD) means one thing, that both hedges MUST be in the same direction, I MUST sell (EURUSD/USDCHF) ratio, and MUST sell (GBPUSD/AUDUSD), or vice versa, buy buy. The problem is understanding which way the ratios will be going since, i'm not dealing with two price signals, i'm dealing with four.

in the EA i also included a main deviation, (EURUSD/USDCHF vs. GBPUSD/AUDUSD Pair Deviation). This deviation can be used to determine if we should LONG LONG, or SHORT SHORT both hedged.

If anyone got ideas on directions, please drop a response!!!
Attached Image
Attached File(s)
File Type: ex4 correlation_2pairs[HEDGE THE HEDGE+4pairs].ex4   4 KB | 1,158 downloads
File Type: mq4 HTH.mq4   2 KB | 1,012 downloads
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