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Zeusjoes Market-Neutral Hedge Strategy

  • #581
  • Aug 19, 2008 5:15pm Aug 19, 2008 5:15pm
UC is like shutopia write is USD/CHF.
EUR/USD and USD/CHF are the best corrlelated pairs (I think). About -80% to -90% correlation.

When their spread (EURUSD-USDCHF) comes to -2 or +2 value they should reverse.

There is no template, you just need historical data, I use 200 M5 periods back and I calculate 200 average and 200 Standard Deviation. This is like Bollinger bands on M5 time frame with settings: 200 average and 2 StDev. But you can not add it to EUR/CHF because spread EURUSD-USDCHF is completely different from EUR/CHF. This are just tests, but I hope the results will be fine.
  • #582
  • Aug 19, 2008 5:18pm Aug 19, 2008 5:18pm
How are you calculating standard deviation ?


Quoting magictrader
I've found something safetier. I'm just calculating standard deviations for spread EU-UC. When it hits +2 or -2 I'm waiting for confirmation (usually candle formations on M5 or M15) then I pull the trigger only on EU.
SL=25 pips
TP=60 pips
so it's nice R:R ratio without adding more positions, that's why it's safetier.

Here are the statistics for last 8 signals (I start follow it last week):
5 x +60 pips
3 x -25 pips.

Even with 30% of good signals it's still profitable. I'm counting on 50%-60% of good signals. In one day there are one or two signals.
  • #583
  • Aug 19, 2008 5:27pm Aug 19, 2008 5:27pm
toddanderson,

http://en.wikipedia.org/wiki/Standard_deviation
  • #584
  • Aug 19, 2008 8:07pm Aug 19, 2008 8:07pm
Quoting toddanderson
How are you calculating standard deviation ?
I would like to know that too. Have you found out from magictrader or anyone how they are calculating the standard deviation?

And the question is "the standard deviation" from what? Is it the standard deviation from 100% correlation of the euro and swissy? Or is he talking about an indicator that will take these values and place it on the EURCHF cross?

I'm not too clear on what he is talking about, are you, toddanderson?

It does sound like it has potential, though.

pd
  • #585
  • Aug 19, 2008 9:25pm Aug 19, 2008 9:25pm
Quoting magictrader
I've found something safetier. I'm just calculating standard deviations for spread EU-UC. When it hits +2 or -2 I'm waiting for confirmation (usually candle formations on M5 or M15) then I pull the trigger only on EU.
SL=25 pips
TP=60 pips
so it's nice R:R ratio without adding more positions, that's why it's safetier.

Here are the statistics for last 8 signals (I start follow it last week):
5 x +60 pips
3 x -25 pips.

Even with 30% of good signals it's still profitable. I'm counting on 50%-60% of good signals. In one day there are one or two signals.
wow..you really develop your technique.. nice to see it. Anyway, does it mean you trade only directional instead of hedging?
  • #586
  • Aug 20, 2008 2:03am Aug 20, 2008 2:03am
Quoting PistolDave
I would like to know that too. Have you found out from magictrader or anyone how they are calculating the standard deviation?

And the question is "the standard deviation" from what? Is it the standard deviation from 100% correlation of the euro and swissy? Or is he talking about an indicator that will take these values and place it on the EURCHF cross?

I'm not too clear on what he is talking about, are you, toddanderson?

It does sound like it has potential, though.

pd
Can't speak on magictrader's method of calculating Standard Deviation, but in pairs trading, the generally accepted method involves taking the SD over anywhere between 10 and 30 bars (10 or 30 period) of the price differential (or price ratio) between your pairs.

You certainly could take the moving standard deviation of EURCHF if your pairs are EURUSD and USDCHF.
  • #587
  • Aug 20, 2008 3:12am Aug 20, 2008 3:12am
Ok, I'll try to make it more clear.

I think that hedging EU and GU is good method but there is more risk, because if EURGBP is in strong trend then it doesn't change anything that we are in hedge. Our lose could be big even with hedge. If we want to have good hedge EU GU then we need to predict EG moves which in 90-95% covers with our gains from pairs trading. So EU GU trading is very profitable when EG is in sideways trend or when we catch tops and bottoms. To catch it I use standard deviations (not perfect, but just add some Bollinger bands on EG chart with 200 average and 3 StDev then you will see how it usually bounce from 3rd StDev on every TF). And also max drawdown to close trades when they aren't in profit.

So next, this idea could work on every highly correlated pairs. That's why I use now EURUSD and USDCHF (I think the best correlated pairs) which mirroring itself.

To know what to do first I take 200 M5 bars back and I calculate difference between EU-UC on every signle bar (like SynchBars indicator). Next I calculate simple average from EU-UC, then from this 200 pariods I calculate standard deviation, then I multiply StDev by +2, +2,5, +3 and so on to +5. Then I add every level to simple average (so this are typical Bollinger Bands). SMA + 2 StDev, SMA + 2,5 StDEv and so on, and also SMA - 2 StDev... That would be great if there is possibility to add StDev to SynchBars indicator.
Then we will have the same thing that I'm doing in Excel.

Then when spread (EU-UC) goes over +2 StDev ot -2 StDev then there is a signal.

I know that is far away from the Zeusjoes concept but for me and my account it's better because of less risk and good R:R ratio which could be set befor the trade. When we do pair trading we don't know what gain we could expect.
  • #588
  • Aug 20, 2008 4:13am Aug 20, 2008 4:13am
and everything clear:
http://www.contracts-for-difference....ifference.html
  • #589
  • Aug 20, 2008 5:56am Aug 20, 2008 5:56am
and also check this out:
http://www.yats.com/doc/cointegration-en.html
  • #590
  • Aug 20, 2008 7:06am Aug 20, 2008 7:06am
Here is even something like SwingMan does for us:
http://daytradepairs.com/default.aspx
  • #591
  • Aug 20, 2008 7:09am Aug 20, 2008 7:09am
Quoting magictrader
Ok, I'll try to make it more clear.

I think that hedging EU and GU is good method but there is more risk, because if EURGBP is in strong trend then it doesn't change anything that we are in hedge. Our lose could be big even with hedge. If we want to have good hedge EU GU then we need to predict EG moves which in 90-95% covers with our gains from pairs trading. So EU GU trading is very profitable when EG is in sideways trend or when we catch tops and bottoms. To catch it I use standard deviations (not perfect, but just add some Bollinger bands on EG chart with 200 average and 3 StDev then you will see how it usually bounce from 3rd StDev on every TF). And also max drawdown to close trades when they aren't in profit.

So next, this idea could work on every highly correlated pairs. That's why I use now EURUSD and USDCHF (I think the best correlated pairs) which mirroring itself.

To know what to do first I take 200 M5 bars back and I calculate difference between EU-UC on every signle bar (like SynchBars indicator). Next I calculate simple average from EU-UC, then from this 200 pariods I calculate standard deviation, then I multiply StDev by +2, +2,5, +3 and so on to +5. Then I add every level to simple average (so this are typical Bollinger Bands). SMA + 2 StDev, SMA + 2,5 StDEv and so on, and also SMA - 2 StDev... That would be great if there is possibility to add StDev to SynchBars indicator.
Then we will have the same thing that I'm doing in Excel.

Then when spread (EU-UC) goes over +2 StDev ot -2 StDev then there is a signal.

I know that is far away from the Zeusjoes concept but for me and my account it's better because of less risk and good R:R ratio which could be set befor the trade. When we do pair trading we don't know what gain we could expect.
Hi magictrader,

I have pm'd Swingman, the man who programmed a lot of the indicators for this strategy. I asked him to take a look at what you are asking for. Maybe if he is not too busy he will be able to help us out.

I don't have any indicators that show standard dev. bands but I have one that makes stDev channels. Take a look at it. It may be helpful.

PD
Attached File(s)
File Type: mq4 Standard Deviation Channels.mq4   2 KB | 944 downloads
  • #592
  • Aug 20, 2008 7:28am Aug 20, 2008 7:28am
Thanks PistolDave.

Maybe this will work also fine, I'm talking about SwingMans LogPriceDifference indicator. It looks like calculations in Excel. (LogPriceDiff is simillar to SynchBars).

I set it up to period 200 (I think this is period from which are standard deviations calculated), and 2 StDev factor.

SwingMan write how to use it, when to enter the trade and when to exit for pair trading. For less risk and better control of our transactions we can trade only one pair. I know this is not market nautral but it could work. But only use negative correlated pairs.
Attached Image (click to enlarge)
Click to Enlarge Name: logprice.JPG Size: 121 KB
  • #593
  • Aug 20, 2008 7:44am Aug 20, 2008 7:44am
Hi,

in July I posted two NeutralPrice indicators, from the Ehrmans book, but nobody used this tools, and I think they are very good.

It's no problem to programe a new serie of indicators, with the ideas from magictrader, if you will this (please vote...).
What I need is a description from what you will have.
  • #594
  • Aug 20, 2008 8:23am Aug 20, 2008 8:23am
Hey,

you are right SwingMan!
I use in Excel the same things like it is in Andrew_e post #37 and even I don't know that .

And also I'm calculating in Excel the same things like yours NeutralPriceOsc in post #417.

Everything was here from the beggining .
  • #595
  • Aug 20, 2008 8:30am Aug 20, 2008 8:30am
Quoting magictrader
Hey,

you are right SwingMan!
I use in Excel the same things like it is in Andrew_e post #37 and even I don't know that .

And also I'm calculating in Excel the same things like yours NeutralPriceOsc in post #417.

Everything was here from the beggining .
You are right, and I'm happy that nobody need new indicators from me...!
.
  • #596
  • Edited 9:10am Aug 20, 2008 8:57am | Edited 9:10am
only my computer has a problem with calculating 200 period with NeutralPriceOsc?
And also other periods, trading platfor is slowing down and I can't do anything.
Do you have the same situation?
Attached Image (click to enlarge)
Click to Enlarge Name: problem.JPG Size: 118 KB
  • #597
  • Aug 20, 2008 9:19am Aug 20, 2008 9:19am
No Problems.

All Periods (also BB) are 200.

- Entry if stdDev is above 3 and comes under the BB. Exit on zero.
.
Attached Image (click to enlarge)
Click to Enlarge Name: eurchfhm5.gif Size: 9 KB
  • #598
  • Aug 20, 2008 9:30am Aug 20, 2008 9:30am
Thanks,
I'll try on new platform, maybe to many indicators on other screens.
  • #599
  • Aug 20, 2008 9:44am Aug 20, 2008 9:44am
Quoting magictrader
Thanks,
I'll try on new platform, maybe to many indicators on other screens.
YES! For the period 200 you need CPU resources!
  • #600
  • Edited 11:13am Aug 20, 2008 10:16am | Edited 11:13am
Ok, I've got fresh new MT4 platform and it works ok.

So this is one pair concept of using differences between two negative correlated pairs. As you can see it can predict tops and bottoms for one pair. With good MM and waiting for confirmation (Fibo, candle formations etc.) it will be profitable.
Attached Image (click to enlarge)
Click to Enlarge Name: one pair.JPG Size: 135 KB
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