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Zeusjoes Market-Neutral Hedge Strategy

  • #641
  • Aug 31, 2008 10:35am Aug 31, 2008 10:35am
or simply download new MT4 platform and delete all screens and indicators. Just leave NP oscillator and one EU chart.
  • #642
  • Aug 31, 2008 1:06pm Aug 31, 2008 1:06pm
Here are some charts with EURUSD CHFUSD EURCHF and EURUSD GBPUSD EURGBP. We can see that for this strategy the best pairs are EURUSD and USDCHF. They are the best correlated pairs. You can try also EURJPY and CHFJPY.
Attached Image(s) (click to enlarge)
Click to Enlarge Name: eurusd_chfusd.JPG Size: 49 KB
Click to Enlarge Name: eurusd_gbpusd.JPG Size: 47 KB
  • #643
  • Aug 31, 2008 2:04pm Aug 31, 2008 2:04pm
Daily correlation GBP/JPY vs EUR/JPY is 95.2%. Daily correlation EUR/USD vs USD/CHF is 99.0% (inverse). H1 correlation GBP/JPY vs EUR/JPY is 97.7%. H1 correlation EUR/USD vs USD/CHF is 89.8%. Looks like E/U vs U/CHF will offer more trading opportunities and will have a greater likelihood of returning to normal state than G/J vs E/J.
Vincit qui se vincit.
  • #644
  • Aug 31, 2008 2:24pm Aug 31, 2008 2:24pm
Everything works when spread has normal distribution. If not, then this strategy will bring loss. But I think EUR and CHF pairs looks closer to normal distribution then EUR and GBP pairs.
  • #645
  • Edited 9:11am Sep 2, 2008 8:32am | Edited 9:11am
If someone interested I'm still trading with Neutral Price Oscillator and EURUSD-USDCHF spread.

Works great with very good accuracy. Now I add one more filter for more confident entry.

It looks like this:
If we're using EURUSD-USDCHF spread then when we're looking for reversal candlestick pattern it has to appear at the same time on EU and UC. This is something like correlation indicator. If on EU appear e.g. morning star then on UC at the same time should appear evening star.
E.g. if on EU appears some pattern, but on UC not, then wait for UC to confirm.

When two patterns appears on EU and UC at the same time and Neutral Price gives signal, then this is signal for trade with very good probability of win.

End what is important, this strategy works well with strong trend on EU and UC like yesterday end today.
  • #646
  • Sep 2, 2008 8:59am Sep 2, 2008 8:59am
Quoting magictrader
If someone interested I'm still trading with Neutral Price Oscillator and EURUSD-USDCHF spread.

Works great with very good accuracy. Now I add one more filter for more confident entry.

It looks like this:
If we're using EURUSD-USDCHF spread then when we're looking for reversal candlestick pattern it has to appear at the same time on EU and UC. This is something like correlation indicator. If on EU appear e.g. morning star then on UC at the same time should appear evening star.
E.g. if on EU appears some pattern, but on UC not, then wait for UC to confirm.

When two patterns appears on EU and UC at the same time and Neutral Price gives signal, then this is signal for trade with very good probability of win.

End what is important, this stratedy works well with strong trend on EU and UC like yesterday end today.
Magictrader,
Could you post some screen shots showing examples of what you mentioned?

Thanks.

Bruce
  • #647
  • Sep 2, 2008 9:28am Sep 2, 2008 9:28am
No problem, it looks like this:
Attached Image (click to enlarge)
Click to Enlarge Name: sample.JPG Size: 149 KB
  • #648
  • Sep 2, 2008 8:24pm Sep 2, 2008 8:24pm
Quoting magictrader
No problem, it looks like this:
Magictrader,

Thanks. Now I can see what you are looking for.

Bruce
  • #649
  • Sep 3, 2008 12:12am Sep 3, 2008 12:12am
Todays example:
spread was at -3 and going back, but only UC confirm the entry, EU not. Now I'm waiting for EU H1 to close above red line (50% of down candle) to open long.
Attached Image (click to enlarge)
Click to Enlarge Name: euuc.JPG Size: 56 KB
  • #650
  • Sep 3, 2008 12:45am Sep 3, 2008 12:45am
Hello Magictrader,

i know, I've just sent you a pm asking you about the details of your hedging system up to today since I have gotten confused reading all the posts. it is very difficult for me to evaluate useful from not so useful. I realize that the system is developing and more details have recently been added, like eg the opposite candlestickformations.

It would be helpful to people that sideenter this thread to get an updated explanation about the principle and details of this hedging strategy. In order not to get lost in the thread. And also in order to start contibuting without making mistakes over some information that might have slipped.

Thank you in advance


Regards
  • #651
  • Edited 12:46pm Sep 3, 2008 1:20am | Edited 12:46pm
Hi,

first of all now I don't hedge. I just use principal from pair trading to directional trading because for me having two positions open is to much and to risky.

Principal looks like this: if the difference between two pairs going to +2 or -2 standard deviations then they should reverse. But they don't have to, so I use candlestick patterns for reversal confirmation.

If spread between EU-UC goes to -2 then I'm looking to go long on EU and if someone want also to go short on UC. But we need a confirmation. Candlesticks patterns are very common and they works ok.
We need also correlation because only when we have correlation this strategy works. So simple indicator of correlations will be the same candlestick patterns on correlated pairs.

To know at which standard deviation spread is I use Neutral Price Oscillator by SwingMan set up like this:
Pair 1: EURUSD
Pair 2: USDCHF
maxBars: 300
Period_Differences: 200
BB_Period: 200.0
BB_Deviation: 2.0

Time Frame for indicator: M5.

I use 25 pips SL on EU and 50 pips TP, but I think to change to 30 SL and 30 TP. I do some backtests and it looks that with 30 pips TP accuracy of this strategy = about 85%.

With 10 pips TP = 99%.

I think that's all. Happy testing and trading.
P.S. I'm looking for long now. At night there were also some short signal, so this is not only counter trend strategy.
  • #652
  • Sep 3, 2008 5:16am Sep 3, 2008 5:16am
Dear Magictrader,

How do you know to go long EURUSD? Why not go short USDCHF? In short, is there a way of knowing which is the better pair to trade by its relative weakness or strength?
---I believe this question was asked by someone earlier in the thread.

Thanks,

Lenoxer
  • #653
  • Sep 3, 2008 5:39am Sep 3, 2008 5:39am
Hi Magictrader,

thank you for the explanation. Probably that's why I did not understand, because I focussed on a hedge all the time.

I will try your system. Thanks again.

Regards
  • #654
  • Sep 3, 2008 9:15am Sep 3, 2008 9:15am
Quoting Lenoxer
Dear Magictrader,

How do you know to go long EURUSD? Why not go short USDCHF? In short, is there a way of knowing which is the better pair to trade by its relative weakness or strength?
---I believe this question was asked by someone earlier in the thread.

Thanks,

Lenoxer
If we based on correlation then there should be no difference. Of course in practice there is difference because of cross pair EURCHF moves. The best way is to go long and short on this pairs, but it is too risky for me so I only use EU.

Today was a perfect signal to go long on EU and short on UC.
Attached Image (click to enlarge)
Click to Enlarge Name: entry.JPG Size: 51 KB
  • #655
  • Sep 3, 2008 2:42pm Sep 3, 2008 2:42pm
Nice signal for short EU and long UC. I've just grab 10 pips from EU and going to sleep.
Let's see how it develops during Asian session...
Attached Image (click to enlarge)
Click to Enlarge Name: signal.JPG Size: 48 KB
  • #656
  • Sep 5, 2008 2:35am Sep 5, 2008 2:35am
I've done some summary of the latest 9 signals (from last 6 days) and 7 signals from this week till todays morning.
Entry on candle open (arrow marked).

Looks like the best score is when TP=30 pips and SL also 30 pips without moving SL.
7 from 9 transactions end on TP.
7x 30
2x -30
overall: +150 pips, 16,66 pips per transaction, 25 pips per day, 77% accuracy.

Also very interesting is when TP=10 and SL=25 pips. Then all 9 transactions end on TP, so accuracy = 100%. I know that is less then 30 pips TP but this accuracy is very cool.
Attached Image (click to enlarge)
Click to Enlarge Name: sygnały.JPG Size: 77 KB
  • #657
  • Sep 5, 2008 2:54am Sep 5, 2008 2:54am
Quoting magictrader
I've done some summary of the latest 9 signals (from last 6 days) and 7 signals from this week till todays morning.
Entry on candle open (arrow marked).

Looks like the best score is when TP=30 pips and SL also 30 pips without moving SL.
7 from 9 transactions end on TP.
7x 30
2x -30
overall: +150 pips, 16,66 pips per transaction, 25 pips per day, 77% accuracy.

Also very interesting is when TP=10 and SL=25 pips. Then all 9 transactions end on TP, so accuracy = 100%. I know that is less then 30 pips TP but this accuracy is very cool.
Magictrader,

Thanks for the summary... Did you take any of those trades on demo or live? If so which ones?
Thanks.
Bruce
  • #658
  • Edited 3:21am Sep 5, 2008 3:02am | Edited 3:21am
of course.
From 1st, 2nd, 3rd and 4th September. But usually I was stopped out bacause I move my SL very quickly to BE.

Now I'm thinking of use more lots with 10 pips TP. Because I don't like to wait few hours for end of the trade .

Even when SL will be hit, then I know that this strategy has bigger potential, so on next trade I can set 30 pips TP and cover my loss.
  • #659
  • Edited 9:47am Sep 5, 2008 5:40am | Edited 9:47am
30 minutes befor NFP was a signal to go long on EU. Another pips gained.

I will mark all my entries on the chart by arrows to easy make summary ans statistics in the future.
Happy trading.

EDIT:
I've made some more backtests. I take last 14 signals that I saw, and 10 pips were in profit 14 times!
100% accuracy.
One tip: if candle is about 50 pips high, then wait for pull back, because we don't want big stop loss and with this kind of candles SL should be at about 40 pips but it's to risky to take only 10 pip profit.
  • #660
  • Sep 5, 2008 12:09pm Sep 5, 2008 12:09pm
Another 10 pips after strong up movement on EU and down on UC spread come to +2, so I was waiting for down movement on EU. Evening star formed on EU earlier, so I wait for confirmation on UC which appears later.

This is fascinating 15 times on 15 signals.
10 pips per trade is enough with this accuracy.

I think I should make a journal to don't mess the thread.
Attached Image (click to enlarge)
Click to Enlarge Name: kolejny sygnał.JPG Size: 58 KB
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