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Zeusjoes Market-Neutral Hedge Strategy

  • #41
  • Jun 25, 2008 9:42am Jun 25, 2008 9:42am
Could you please post your excel sheet , I am not good with formulas

Thank you

Quoting Andrew_e
GBP is moving faster not only because is worth more, there are another factors too - one of that is liquidity of pair.

I did some research some time ago about pair traiding (not fx pair but two different equitis, futures etc). Pro often use normalized divergence of pairs.
One calculate average of pair div (price), next calc average of div between this average (between avg and pairs price div) and divided it by standard deviation of it. This sound complicated but it isn't - I did it in Excel but it's easy to programm it. I attached some scans form book "The handbook of pairs trading" by Douglas S.Ehrman. Btw this is interesting book if one is interested in pair traiding.

Regards,

Andrew
  • #42
  • Jun 25, 2008 12:55pm Jun 25, 2008 12:55pm
Quoting Dezil
In this case you don't take 2 jpposite orders? so how to choose on what pair open trade and in what direction?
How can you predict which pair will chande direction to match another pair?

In other words, when you buy GPB while EUR is downtranding GBP can go down to match EUR.

Or i've missed something?
Its nothing more than divergence.
Usually we trade divergence with a pair versus an indicator.

In this case we are trading divergence between two closely correlated pairs.

Theoretically, when one makes a high, so should the other.
When one makes a low, so should the other.

When they don't, you have a divergence.

On a bullish divergence we buy the weaker pair.
On a bearish divergence, we sell the stronger pair.

I mistakenly put my arrows just the opposite of that, but you can see what I mean.

As a trigger, on a bullish divergence you're looking to buy. You can use a bar who's H and L are higher than the previous bar.

On a bearish divergence, sell on a bar who's H and L are lower than the previous bar.

There is a bearinh divergence right now on GBP/JPY and EUR/JPY. 4H.

EUR/JPY is the stronger. If it has a bar that's H and L are lower than the previous bar, it's a short trade.

If GBP/JPY breaks 213.26 before this happens, the trades off.

I don't know if this would work any better, or as well, as Zeusjoes idea, but its the same principal.
  • #43
  • Jun 25, 2008 1:58pm Jun 25, 2008 1:58pm
Thks, for explanation. I'll try this?. Zeus sistem is some like arbitrage. it works when pairs move correlating but with differend range.
You system is for non correlated periods of pairs moving.
  • #44
  • Jun 25, 2008 2:09pm Jun 25, 2008 2:09pm
Quoting Dezil
Thks, for explanation. I'll try this?. Zeus sistem is some like arbitrage. it works when pairs move correlating but with differend range.
You system is for non correlated periods of pairs moving.

It means the same thing. In both cases the pairs aren't moving together as they normally do.
  • #45
  • Jun 25, 2008 4:20pm Jun 25, 2008 4:20pm
Quoting ZeusJoes
You might be right that the same position can be created with a directional trade on EURGBP at lower spread costs. This is something I havent even considered so cheers for pointing that out. Either way the USD would be a cheeper benchmark currency.
Thanks a lot to Zeus for bringing up this idea. I indeed know many traders follow similar strategy and claim success. This thread may help us to contribute together to learn from Zeus and get this idea even better maybe.

But there is nothing to cheer out for single direction trading, e.g. trade eurgbp. I have to say, it is completely different from the Zeus 2-pair trading.

If someone trade EurGbp, just read that chart, act as normal trading. Recognizing the diverging 2-pair may reduce your risk to solely trading eurgbp. But trading eurgbp cannot replace 2-pair trading in the sense of lower risk, higher return.

hope i made myself understood. after all, trading 2-pair is not same as solely trading the cross. last example, some always say that long eurusd + short gbpusd = long eurgbp. It seemingly true. but it is NOT. Especially when it come to xxxJPY. The pip difference may be huge.
  • #46
  • Jun 26, 2008 3:07am Jun 26, 2008 3:07am
I am trading this kind of method on live micro lots and so far it goes pretty well.

Quoting Dezil
Tgijs, what is you experiance in this metod?
Inflation in things we need, Deflation in things we want.
  • #47
  • Jun 26, 2008 4:21am Jun 26, 2008 4:21am
Quoting Thijs
I am trading this kind of method on live micro lots and so far it goes pretty well.
Could you explain step by step your trading? How do you choose time to enter and exit? How you determine target profit?
  • #48
  • Jun 27, 2008 9:14am Jun 27, 2008 9:14am
Here's an example of what I was talking about yesterday on the hourly charts.

E/J made a low. G/J did not. Buy the E/J.

Actually you can buy either. I'm showing buying the weaker to keep with the concept of this thread.
Attached Image (click to enlarge)
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  • #49
  • Edited 10:04am Jun 27, 2008 9:27am | Edited 10:04am
How you know that E/J is the weaker? Maybe G/J is the overbuy and in this case you will have to sell G/J not buy E/J.
Sorry for my english...i hope you understand what i want to say......
  • #50
  • Jun 27, 2008 9:30am Jun 27, 2008 9:30am
Quoting raad
How you know that E/J is the weaker? Maybe G/J is the overbuy and in this case you will have to sell G/J not buy E/J.
Sorry for my english...i hope you understant what i want to say......
I know it's the weaker because I can see it on the chart.
Look at the dip on E/J and the up move on G/J.
  • #51
  • Jun 27, 2008 9:50am Jun 27, 2008 9:50am
Quoting billbss
Here's an example of what I was talking about yesterday on the hourly charts.

E/J made a low. G/J did not. Buy the E/J.

Actually you can buy either. I'm showing buying the weaker to keep with the concept of this thread.
I get it. But the concept of this thread at start was how to try to hadge opening 2 positions same time.

This week i did some trades on GBP/USD and EUR/USD.
I open 2 orders at the same time and close both when total profit of 2 positions is 15 pips. Actually all my trades was in profit. The main problem is how clearly detemine time to enter and exit
  • #52
  • Jun 27, 2008 10:42am Jun 27, 2008 10:42am
Quoting free84
maybe this one could help? i found in another forum and i modifie an indic to better view

Hello Free84

Firstly thanks for the sharing. I have downloaded the indicator but when i use it nothing happens to the chart.

Can you please explain how to use it.

Many thanks
  • #53
  • Jun 29, 2008 9:15pm Jun 29, 2008 9:15pm
OK... here you go.... but the Delta on this one is only 70p, I might wait for more, but you get the idea...

I might have an EA available at some point.. in develpment now with my programmer... not as easy as it looks!!

mk
Attached Image (click to enlarge)
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  • #54
  • Jun 29, 2008 10:03pm Jun 29, 2008 10:03pm
guys, i'm saying it right here, right now.

there is no guarantee the correlation will ever go back to zero.... in fact correlations can deteriorate without justification

in my research, i took EURUSD and GBPUSD and calculated the exact lot sizes to neutralize movement as much as possible. I think it was like 0.5 GBPUSD for every 1.0 EURUSD.

well even with the tightest correlations (you are betting that it will eventually come back to zero) it can go thousands of pips apart in either direction (otherwise you'd just counterbalance against the bias)

the result was a less volatile EURGBP cross, but where's the advantage in that? just buy EURGBP when it goes down, and sell when it goes up? i don't think so....
  • #55
  • Jun 30, 2008 1:53am Jun 30, 2008 1:53am
Quoting tdion
guys, i'm saying it right here, right now.

there is no guarantee the correlation will ever go back to zero.... in fact correlations can deteriorate without justification

in my research, i took EURUSD and GBPUSD and calculated the exact lot sizes to neutralize movement as much as possible. I think it was like 0.5 GBPUSD for every 1.0 EURUSD.

well even with the tightest correlations (you are betting that it will eventually come back to zero) it can go thousands of pips apart in either direction (otherwise you'd just counterbalance against the bias)

the result was a less volatile EURGBP cross, but where's the advantage in that? just buy EURGBP when it goes down, and sell when it goes up? i don't think so....
There is NO guarantee in Forex at all. In this system like in all ohers you must cut loss and let the profit run.
  • #56
  • Jun 30, 2008 2:37am Jun 30, 2008 2:37am
did you just say, "get lucky" ?

Quoting Dezil
In this system like in all ohers you must cut loss and let the profit run.
  • #57
  • Jun 30, 2008 3:38am Jun 30, 2008 3:38am
does anyone ever calculate how much the discrepancy between E/J and G/J?
I try this method today and so far i got like 50 pip....it is quite big....
  • #58
  • Jun 30, 2008 8:53am Jun 30, 2008 8:53am
Let' not lose sight of what we are trying to do with ANY system.....

Put the odds in our favor. That is it.

Of course there is no guarantee the the correlation will ever return to zero.. of course! But MOST of the time it does. In fact, a very high percentage of times it does. It can be back checked accurately, because this is just price action.

So hence the approach. This is not your usual "correlation" or "carry" trade. The conventional approach is to zero out the risk, go with the swap. We do not want to zero out the risk! But we want to minimize it, or slow it down. That same un-correlation that is our risk, also provide us our profits.

Well said above, limit your risk. Yes. If 99 times out of 100 the correlation (as seen visably on the indicator) returns to zero after extending to say, 90... then if you take the trade, as noted above, you will gain your pips those 99 times... (if you can weather it going further out of correlation before it zeros.)

And there is the rub! That one time that maybe it DOES go thousands of pips out of correltion, are we going to ride it? Not me. So when do we bail and accept the loss. That is trading. That is your call. For me, and the percentages (probabiliites) I am seeing in this price action, I'll trade the 90 spread, and go with maybe a 200 or 250p SL. So I am out before it takes off for it's thousand pip uncorrelated run... but that's just me. Then, reset your correlation from there and move ahead.
Oh, and trading opposing sides of GBPUSD and EURUSD is not the same as trading the EURGBP. Just take a few trades of each at the same time and see the results.

Probabilities, that's all we have. Cut your losses, take your profits when they come. We'll be OK.
  • #59
  • Jun 30, 2008 2:39pm Jun 30, 2008 2:39pm
Made another 15 pips today. I try to use this system on 15 min tf
  • #60
  • Jun 30, 2008 3:38pm Jun 30, 2008 3:38pm
Denzil,

Can you please show us a chart on this?

Thanks,
Guess
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