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Zeusjoes Market-Neutral Hedge Strategy

  • #401
  • Jul 25, 2008 8:39am Jul 25, 2008 8:39am
yep - that is correct - as far as i see it.

Quoting Luis Gustavo
I supposed this question is answered somewhere, but this thread grew too big =D. So, i'm used to Long/Short strategies like this one in the stock exchange... usually do a couple per month. But on Forex e was afraid that egtting short at EU and long at GU would mean getting short at EurGbp. So this is not true, right? When i do what is suggested here i'm actually betting on the volatility of these pairs, which is by no means the same thing of shortening the Eur/Gbp. Am i right?


thank you in advance
  • #402
  • Jul 25, 2008 9:08am Jul 25, 2008 9:08am
All very interesting... but ....

YES YOU CAN LOSE in this method. Don't kid yourself and think it will ALWAYS return to cross, or to zero. Currency correlations can and will reset from time to time.

The only way we "can't lose" is if:
1. We have unlimited resources and can withstand a trade that goes many hundreds of pips against us

and

2) if, while in this huge drawdown, you can wait for maybe years for it to "come back", tieing up your trading margin.

and

3) live with the fact that #2 may not happen!!

This is why I "preach" a MaxLoss. We simply have to have it in place. Sure, we probably won't hit it, if it is set correctly, and 99% of our trades "should" eventually close in a profit if we wait, and handle the tempory DD as mentioned, but we still have to have a MaxLoss.

We are getting there.

The statement above that the Delta (difference in prices between the two currencies) is not that important is correct. But it does affect both our trade profit and drawdown. You could make 10p with a 70p DD, or make 70p with a 10p DD all depending on your entry. At the end of both trades, both were wins, and you will pick up more 10p wins with a smaller Delta entry. So, it is all according to your "style" and risk tolerance.

All good.

I will be performing a few weeks of backchecks on different time frames this weekend using the Synchbar indicator for entry/exit and NeutralHedgeOsc for direction... keep you posted...

Great weekend to all!
  • #403
  • Jul 25, 2008 9:17am Jul 25, 2008 9:17am
Quoting mrkam
I will be performing a few weeks of backchecks on different time frames this weekend using the Synchbar indicator for entry/exit and NeutralHedgeOsc for direction... keep you posted...
Please use for backtests only the version 4.X...
  • #404
  • Jul 25, 2008 9:24am Jul 25, 2008 9:24am
It is very interesting way to trade forex, no trend lines, no pivots, no Fibs etc. It could look as some kind of arbitrage like on stocks and futures market or some kind of option strategies in short term.

I also think of some kind of stop loss, e.g 150 pips drowdown, if hit then close positions no matter what.
  • #405
  • Jul 25, 2008 10:09am Jul 25, 2008 10:09am
YES!!! (see post above, and many others before)... .We just HAVE to have a MaxLoss... agreed.
  • #406
  • Edited 12:42pm Jul 25, 2008 11:03am | Edited 12:42pm
for the last 3 days, GU/EU pairs, 15m, using SynchBar for entry, exit at Zeroline, NHOv3.4 colors for direction:

3 trades, +68, +42, +52, Drawdowns were -47, 0, and -16. Not bad. Could have ran the trades past Zeroline for aggressive exits at more profit...

for the past 2 weeks on H1: three trades: +145, +65, +45... no DD data yet...

Great weekend to all! I think we made some good progress this week....
  • #407
  • Jul 25, 2008 11:41pm Jul 25, 2008 11:41pm
Apart from neutral strategy between:
GBP/JPY and EUR/JPY
GBP/USD and EUR/USD
Can we use this neutral hedge strategy for any other pairs?
  • #408
  • Jul 26, 2008 12:49am Jul 26, 2008 12:49am
Quoting mrkam
A different way of looking at the same thing....
Please check this indicator:

- On using log(DiffPrices) and not the native DiffPrices, you can better compare various pairs.

- On using the mean and the standard deviation of differences, maybe is easier to find the entry/exit points.

- The NH oscillators 3.x or 4.x, confirme the trade direction!

Trade examples between StdDev Lines and mean line:
(I taked the lots ratio = 1.20)

1. 2008.07.24 09:00 / 13:00
=====================
Sell GU 1.9944 / 1.9858 = 86
Buy EU 1.5683 / 1.5676 = -7 * 1.2 = -8
WL = +86 - 8 = +78

2. 2008.07.25 09:30 / 15:30
=====================
Buy GU 1.9870 / 1.9918 = +48
Sell EU 1.5714 / 1.5685 = +29 * 1.2 = +35
WL = +48 + 35 = +83
.
Attached Image (click to enlarge)
Click to Enlarge Name: gbpusdeurusd_logdiff.gif Size: 24 KB
Attached File(s)
File Type: ex4 NeutralHedge oLogPriceDiff.ex4   3 KB | 1,437 downloads
  • #409
  • Jul 26, 2008 1:22am Jul 26, 2008 1:22am
If the differences don't go to the mean line and reverse to the StdDev line, you must close the position, with a win...!

2008.07.15 05:30 / 10:00
===================
Sell GU 1.9978 / 2.004 = -26
Buy EU 1.5934 / 1.5975 = +41 * 1.2 = +49
WL = -26 + 49 = +23
.
Attached Image
  • #410
  • Jul 26, 2008 3:28am Jul 26, 2008 3:28am
I found this image on some forum. Chart plotting spread between XOM and CVX in realtime. Bollinger Bands is used for entry and exit.
Attached Image
  • #411
  • Jul 26, 2008 5:22am Jul 26, 2008 5:22am
Quoting SwingMan
Please check this indicator:

- On using log(DiffPrices) and not the native DiffPrices, you can better compare various pairs.

- On using the mean and the standard deviation of differences, maybe is easier to find the entry/exit points.

- The NH oscillators 3.x or 4.x, confirme the trade direction!

Trade examples between StdDev Lines and mean line:
(I taked the lots ratio = 1.20)

1. 2008.07.24 09:00 / 13:00
=====================
Sell GU 1.9944 / 1.9858 = 86
Buy EU 1.5683 / 1.5676 = -7 * 1.2 = -8
WL = +86 - 8 = +78

2. 2008.07.25 09:30 / 15:30
=====================
Buy GU 1.9870 / 1.9918 = +48
Sell EU 1.5714 / 1.5685 = +29 * 1.2 = +35
WL = +48 + 35 = +83
.
As I understand, the STD line is the center one, and the mean lines the extremities, or viceversa?
I don't say
  • #412
  • Jul 26, 2008 7:17am Jul 26, 2008 7:17am
Quoting dragosd1
As I understand, the STD line is the center one, and the mean lines the extremities, or viceversa?
Viceversa!
We have only one mean line and two StdDev lines (mean plus/minus sigma*factor)
  • #413
  • Jul 26, 2008 7:53am Jul 26, 2008 7:53am
Quoting SwingMan
Viceversa!
We have only one mean line and two StdDev lines (mean plus/minus sigma*factor)
Aha, ok
I don't say
  • #414
  • Jul 26, 2008 8:25am Jul 26, 2008 8:25am
Quoting SwingMan
Viceversa!
We have only one mean line and two StdDev lines (mean plus/minus sigma*factor)
Isn't that the same thing as a Bollinger Band?
  • #415
  • Jul 26, 2008 9:17am Jul 26, 2008 9:17am
Quoting billbss
Isn't that the same thing as a Bollinger Band?
Yes, is a similar idea.
  • #416
  • Jul 26, 2008 3:03pm Jul 26, 2008 3:03pm
Hi guys,

I understand the concept and way to trade this system, but what is the latest, as there are loads of indicators - some in use, some not.

Regards,
Vip
  • #417
  • Edited 9:46am Jul 27, 2008 9:28am | Edited 9:46am
Quoting Andrew_e
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.
Thanks Andrew for your note !

I have programmed the normalized divergence (with Bollinger Band 20, 2), and the RSI for this oscillator.
You can try this tools. I think that the trading informations are very good.
For oscillator values above 2-3 StdDev, crossing the BB, and RSI under 30 or 50, the long signals are very clear (maybe clearer as from the nacked price differences).
.
Attached Image (click to enlarge)
Click to Enlarge Name: gbpusdeurusd_pricediff.gif Size: 16 KB
Attached File(s)
File Type: ex4 NeutralPrice Oscillator_v1.ex4   5 KB | 1,412 downloads
File Type: ex4 NeutralPrice OscillatorRSI.ex4   4 KB | 1,297 downloads
  • #418
  • Jul 27, 2008 12:13pm Jul 27, 2008 12:13pm
Quoting SwingMan
Thanks Andrew for your note !

I have programmed the normalized divergence (with Bollinger Band 20, 2), and the RSI for this oscillator.
You can try this tools. I think that the trading informations are very good.
For oscillator values above 2-3 StdDev, crossing the BB, and RSI under 30 or 50, the long signals are very clear (maybe clearer as from the nacked price differences).
.
SwingMan:

Do you mind outlining how you would trade the last chart you posted? Thanks.

-
  • #419
  • Jul 27, 2008 2:43pm Jul 27, 2008 2:43pm
Dear Thread,

Can someone summarize for me the principal differences between your way of doing hedge trading and Spieler's hedged trading on EURUSD/USDCHF and the advantages and disadvantages of both?

Thanks,

Lenoxer
  • #420
  • Jul 27, 2008 3:04pm Jul 27, 2008 3:04pm
Quoting SwingMan
Thanks Andrew for your note !

I have programmed the normalized divergence (with Bollinger Band 20, 2), and the RSI for this oscillator.
You can try this tools. I think that the trading informations are very good.
For oscillator values above 2-3 StdDev, crossing the BB, and RSI under 30 or 50, the long signals are very clear (maybe clearer as from the nacked price differences).
.
SwingMan,
Sehr Gut!!

I have a question.
When the bar hits the bottom Bollinger Band, the RSI is always below 50. Did you mean it must be below 30?
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