Menu
Sister Sites

Options

Bookmark Thread

First Page First Unread Last Page Last Post

Print Thread

Similar Threads

Algorithmic Quant Trading (Machine Learning + Stat-Arb) 25 replies

From 1600 USD to 10T+ USD with a portfolio of stat arb alphas 10 replies

Icemaan Arb-O-Mat Trades 4 replies

Developing a correlated bouncing system 9 replies

Pairs least correlated to GBP/JPY? 1 reply

Attachments: The correlated arb/hedge-system
Exit Attachments

The correlated arb/hedge-system

  • Post #1
  • Quote
  • First Post: Mar 8, 2007 5:12am Mar 8, 2007 5:12am
Hi folks!

I would like some help from anyone…

I trying to develop an arbitrage/hedge system (called whatevery you like) of my own. At least i have an idea i would like to see if it works…
The idea is quite simple. I trying to take advantage of the correlation between EUR/USD and USD/CHF. These two pairs is well known for it’s good correlation. So my idea is to take a position (buy or sell) when the correlation is NOT good. Then the pair will start catching up to be correlated again. When that happens one of the currency pair will move more then the other and that is what I want to take advantage of.

But i have a problem… a BIG problem. In order to make my idea come true i need indicators that shows me the correlation between two pairs.
I have looked in to EUR/USD and USD/CHF but i having i hard time seeing if it is good correlated or not.

Any other indicators that would help me out would be appriciated too.

I have found some indicators that i can’t understand at all. They are from a page called ForexForSmarties. But as i said i don’t understand how to use them at all.

Ok… hope someone can help me out here and provide me with some indicators… and please include some short description of how to use/read the indicator.

Regards / JoLi
If you use chf/jpy and eur/jpy instead of the USD crosses you will have a visual of the correlation, no need for actual indicator to tell you. Or are you seeking an indicator for past averages of % changes etc?
The market is my nation. Traders, my family. Hello, brothers and sisters!
Heres one.
Attached File
File Type: mq4 All_usd_pair[1].mq4   9 KB | 946 downloads
Markj,
I put this indicator on my chart but can you expain how to interpret it? Thanks
I think this is what you're looking for.

I looked at this idea a couple months ago too, but became wrapped up in a different idea. It looked good in the amount of time I looked at it. I'd love to know if it pans out!


Seavo
Attached File
File Type: mq4 correlation_v1.mq4   3 KB | 994 downloads
I will test both of these indicators

I'm at my work now so i can't test it yet...
But are they easy to read/use?

Seavo: Ofcourse i will presentate my idea and system if it looks good and profitable.

/ JoLi
Quoting Seavo
I think this is what you're looking for.

I looked at this idea a couple months ago too, but became wrapped up in a different idea. It looked good in the amount of time I looked at it. I'd love to know if it pans out!


Seavo
It wont work for me. Is it working for everyone else?
Quoting ForexDude2
It wont work for me. Is it working for everyone else?
Make sure the names of the pairs are the same that your broker uses. This is in the input section of the indicator when you put it on the chart.
Some times, brokers put a m after a pair like EURUSDm This would indicate a mini or micro account. If the name is not exact, it will not work.
Speaking of arbitrage, read the excellent : "Triangular arbitrage in the foreign exchange market " by Marios Mavrides.

The books shows that the best currencies for triangular arbitrage are the Yen, the British Pound and the US dollar. These 3 currencies do get out of whack sometimes, but just for a few seconds or minutes at most.
Quoting smjones
Make sure the names of the pairs are the same that your broker uses. This is in the input section of the indicator when you put it on the chart.
Some times, brokers put a m after a pair like EURUSDm This would indicate a mini or micro account. If the name is not exact, it will not work.
Thanks! Its a nice indicator to have
I've modified the above indicator to draw the absolute pip difference. Maybe you can pick up a pattern from watching that.
Attached File
File Type: mq4 correlation_raw_absolute.mq4   3 KB | 988 downloads
Markj:

Thanks for the indicator but i must say as toothman... how shall one use this indicator and how to read it? There is lines all over the place. I do think it is a good indicator once you know how to use it.

Seavo:

A much simpler indicator have you provided with and i understand it quite a bit. But i have one question... when the indicator is below 0 is it then good or bad correlation?

ForexDude2:

Can you explain a lite more what the changes was and how to read/use it?

--------------------------------------------------------------

I must say that i am really happy of all the help so far. It is amazing that complete strangers are willing to help another stranger....
I really hope that this system i'm about to make will function and be profitable so all you guys helping me out can benifit from it.

Thanks!

Regards / JoLi
Its just a USDCHF minus EURUSD. I'll try to make a more complicated one since you can have different situations (both candles up, one up one down etc) but thats all for now... I'm curious if I can draw the EURCHF chart from that or it will be something else
ForexDude2:

That sounds really good.
Quoting FXTerminator
Speaking of arbitrage, read the excellent : "Triangular arbitrage in the foreign exchange market " by Marios Mavrides.

The books shows that the best currencies for triangular arbitrage are the Yen, the British Pound and the US dollar. These 3 currencies do get out of whack sometimes, but just for a few seconds or minutes at most.
Is this book still valid? It quotes "dollar-mark-yen"...

Thanks
Joli, is your main focus to find an indicator that will compare the movements of the eur/usd and usd/chf? Thus if euro/$ moves 3.2%, and $/franc moves -1.2%, you want to be able to visually see this with an indicator? Then after this you want to be able to apply the correlation effect to it?
The market is my nation. Traders, my family. Hello, brothers and sisters!
Stockjay:

Quote
Joli, is your main focus to find an indicator that will compare the movements of the eur/usd and usd/chf? Thus if euro/$ moves 3.2%, and $/franc moves -1.2%, you want to be able to visually see this with an indicator? Then after this you want to be able to apply the correlation effect to it?

The answer is: YES

Do you have or know such indicator?

/ JoLi
Quoting jolimoney
Stockjay:



The answer is: YES

Do you have or know such indicator?

/ JoLi
Well, indicator.. not for MT4. If you are looking into correlation, I would take a look at FXsol. You can open up a free demo account with them. After you do that, download their AccuCharts service. There are a lot of cool tools you can use to track correlation, compare performances of pairs etc.

The images are not very good, though take a look at these. The pairs are gbp, eur and chf / JPYs. As you are probably aware, these pairs are chronically +70% correlated. Thus, IMO, offer the best perspective if you use correlation.

http://i130.photobucket.com/albums/p...2/JPYLog-4.jpg
http://i130.photobucket.com/albums/p...2/JPYLog-5.jpg
http://i130.photobucket.com/albums/p...2/JPYLog-6.jpg
http://i130.photobucket.com/albums/p...2/JPYLog-7.jpg

Notice how the Yellow Pair fills the gap.

If you get AccuCharts, open the chart you would like to see, EUR/USD (from original post), then use the "Inversion" indicator under Analysis Tools. This will create an inverted line in a seperate window. After that, overlay the USD/CHF chart and drag it into the window with the inverted EUR/USD. This will show you the chf/usd, eur/usd comparison. It will give you a + correlation, rather than - correlation view.

I kinda started rambling, hope it helps you a little.
The market is my nation. Traders, my family. Hello, brothers and sisters!
  • Post #19
  • Quote
  • Edited at 3:44pm Mar 10, 2007 3:04pm | Edited at 3:44pm
Quoting ForexDude2
Is this book still valid? It quotes "dollar-mark-yen"...

Thanks
Hello,

This book about triangular arbitrage in the FX market was written when the German mark was still "alive", but the dollar-pound-yen combinaison still produces the best overall results, followed by dollar-mark-yen and dollar-yen-franc.

But please remember one thing : in order to exploit these inefficiencies in the FX market, you need a fast automated software, a powerful computer, a T3 internet connection and an extremely reliable datafeed, because these inefficiencies only exist for a few seconds and are closely monitored by all the banks and major dealers in the world, simply because they represent totally RISK-FREE trading opportunities.
Stockjay:

I tryed to du as you describe but i can't get the USD/CHF chart up. When i try to see the USD/CHF chart it just replace the EUR/USD i allready av up.

Regards / JoLi
0 traders viewing now