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Arbitrage Trading

  • #1
  • First Post: Feb 9, 2009 11:43am Feb 9, 2009 11:43am
I have been using this method manually based off this formula.
You use only GBPUSD EURGBP EURUSD

NOW. IT CAN ONLY BE A S.S.B. OR A B.B.S combination, in that order.
Lots sizes GBPUSD uses price of EURGBP, rest of the 2 are 1 lots

GBPUSD EURGBP EURUSD
ex, LOTS S 0.95 B 1 B 1


NEXT STEP IS DECIDING WHICH COMBO TO CHOOSE FROM? VERY IMPORTANT
IF SSB THEN,
SELL MARKET ORDER GBPUSD
BUY MARKET ORDER EURUSD
PLACE A PENDING ORDER SELLLIMIT ORDER EURGBP XX PIPS ABOVE CURRENT PRICE

IF BBS

BUY MARKET ORDER GBPUSD
SELL MARKET ORDER EURUSD
PLACE A PENDING ORDER BUYLIMIT ORDER EURGBP XX PIPS BELOW CURRENT PRICE

AS LONG AS THE PENDING ORDER IS TRIGGER YOUR LOCKED IN A PROFITABLE ARBRITRAGE TRADE.

I NEED A WAY TO HELP DECIDE WHICH COMBO TO CHOOSE AND IF THE PENDING ORDER IS LIKELY TO BE TRIGGERED THAT DAY. IF NOT TRIGGERED THEN YOUR IN A DEEP DRAWDOWN TILL IT RETURNS BACK, THATS WHAT I AM TRYING TO AVOID.

ANY IDEAS?
  • #2
  • Feb 9, 2009 12:00pm Feb 9, 2009 12:00pm
So if I understand you, you are using the trending effect of EURGBP, right?
And what you need is a way to determine if you are in a likely Buy Buy Sell or a Sell Sell Buy based on the trend and the likeliness of hitting the trigger on EURGBP, is that right?

If that is so, then I would recommend looking for a AB=CD formation on EURGBP where C is a retrace of no more than .612 of AB and if the AB=CD is short you know you want a SSB and if the EURGBP AB=CD is long you will want a BBS, because you can probabilistically expect a extension of CD to 1.61 or so of AB. The main thing I see here is that you are taking on a draw down risk and limiting your profit. perhaps I am mistaken on how this works. If so, please elaborate.

EDIT

After thinking about this, why not just trade EURGBP? Same risk, much less cost.
  • #3
  • Feb 9, 2009 12:14pm Feb 9, 2009 12:14pm
Quoting thatwasme
So if I understand you, you are using the trending effect of EURGBP, right?
And what you need is a way to determine if you are in a likely Buy Buy Sell or a Sell Sell Buy based on the trend and the likeliness of hitting the trigger on EURGBP, is that right?

If that is so, then I would recommend looking for a AB=CD formation on EURGBP where C is a retrace of no more than .612 of AB and if the AB=CD is short you know you want a SSB and if the EURGBP AB=CD is long you will want a BBS, because you can probabilistically expect a extension of CD to...
Yes your correct about. Put can you show examples of this
AB=CD formation.

Are you able to do an indicator of this sort showing where to place your limit order for EURGBP
  • #4
  • Feb 9, 2009 12:23pm Feb 9, 2009 12:23pm
Quoting fab4x
Yes your correct about. Put can you show examples of this
AB=CD formation.

Are you able to do an indicator of this sort showing where to place your limit order for EURGBP
Ok, AB=CD is a formation that is a very old pattern. What it states is you will have a point A then a move up to a point B then a retrace to a point C and then a move up to a point D for a long AB=CD, for a short AB=CD it is just the opposite.

Here is a diagram of the pattern. Note that the retrace is important, because it dictates the probability of where the extension will end.
Attached Image (click to enlarge)
Click to Enlarge Name: ScreenHunter_010.gif Size: 21 KB
  • #5
  • Feb 9, 2009 12:25pm Feb 9, 2009 12:25pm
You would place your trigger at the B point after the C point had been made no greater than .618 retracement.

And then you could place a profit target at 1.61 extension or, because you are locking out a chance for loss, follow the trend as far as it will go, using Support and resistance point from previous prices.

However, like I said above why do the three? the cost is greater.
  • #6
  • Feb 9, 2009 12:30pm Feb 9, 2009 12:30pm
How is that arbitrage if it involves big risk?
Also you should get yourself a new keyboard. Your Capslock seems
to be broken.
  • #7
  • Feb 9, 2009 12:35pm Feb 9, 2009 12:35pm
Quoting thatwasme
You would place your trigger at the B point after the C point had been made no greater than .618 retracement.

And then you could place a profit target at 1.61 extension or, because you are locking out a chance for loss, follow the trend as far as it will go, using Support and resistance point from previous prices.

However, like I said above why do the three? the cost is greater.

There is no profit target set since you use the space between current price and where your pending order is placed. Ex if 15pips away then you'll lock in approx $150 when all 3 are entered
  • #8
  • Feb 9, 2009 12:39pm Feb 9, 2009 12:39pm
Quoting fab4x
There is no profit target set since you use the space between current price and where your pending order is placed. Ex if 15pips away then you'll lock in approx $150 when all 3 are entered
Ok, I see. If you want an in depth instruction on AB=CD see
"Trade What You See" by Pesavento , see chapert 4

The book is sold at Amazon and pretty cheap. It is one of my favorite books for trading.
  • #9
  • Feb 9, 2009 12:42pm Feb 9, 2009 12:42pm
Quoting thatwasme
Ok, AB=CD is a formation that is a very old pattern. What it states is you will have a point A then a move up to a point B then a retrace to a point C and then a move up to a point D for a long AB=CD, for a short AB=CD it is just the opposite.

Here is a diagram of the pattern. Note that the retrace is important, because it dictates the probability of where the extension will end.
How do you calculate this?
From lowest LOW to highest HIGH or highest HIGH to lowest LOW?
  • #10
  • Feb 9, 2009 12:47pm Feb 9, 2009 12:47pm
Here is an example from today just now in fact on EURUSD with IBFX
Attached Image
  • #11
  • Feb 9, 2009 1:06pm Feb 9, 2009 1:06pm
Quoting thatwasme
Here is an example from today just now in fact on EURUSD with IBFX

You have to use EURGBP only for pending orders the other 2 sides are market orders.

Can you go back to last week and tell me what where limit orders price for each day. That way I can see how you got the price from and if it was a successfull SSB or BBS arb.

I only trade once a day starting from hour 0 IBFX.
  • #12
  • Edited 1:27pm Feb 9, 2009 1:12pm | Edited 1:27pm
Quoting fab4x
You have to use EURGBP only for pending orders the other 2 sides are market orders.

Can you go back to last week and tell me what where limit orders price for each day. That way I can see how you got the price from and if it was a successfull SSB or BBS arb.

I only trade once a day starting from hour 0 IBFX.
whoa it's not my system. LOL You should probably figure that out for yourself, because it would be tailored to you. I have given you a way to enter the trigger, now it is time to use google or Amazon, or the Library. Otherwise it would not be your system, fitted for your trading.

EDIT

BTW the above AB=CD hit the profit just now.
  • #13
  • Feb 9, 2009 1:36pm Feb 9, 2009 1:36pm
Quoting thatwasme
whoa it's not my system. LOL You should probably figure that out for yourself, because it would be tailored to you. I have given you a way to enter the trigger, now it is time to use google or Amazon, or the Library. Otherwise it would not be your system, fitted for your trading.

EDIT

BTW the above AB=CD hit the profit just now.

Are you able to code it into an EA?
  • #14
  • Feb 9, 2009 1:39pm Feb 9, 2009 1:39pm
Quoting fab4x
Are you able to code it into an EA?
Really? A EA? I don't think I would be interested. thanks for asking though.

Good trading to you.
  • #15
  • Feb 9, 2009 3:16pm Feb 9, 2009 3:16pm
Quoting fab4x
I have been using this method manually based off this formula.
You use only GBPUSD EURGBP EURUSD

NOW. IT CAN ONLY BE A S.S.B. OR A B.B.S combination, in that order.
Lots sizes GBPUSD uses price of EURGBP, rest of the 2 are 1 lots

GBPUSD EURGBP EURUSD
ex, LOTS S 0.95 B 1 B 1


NEXT STEP IS DECIDING WHICH COMBO TO CHOOSE FROM? VERY IMPORTANT
IF SSB THEN,
SELL MARKET ORDER GBPUSD
BUY MARKET ORDER EURUSD
PLACE A PENDING ORDER SELLLIMIT ORDER EURGBP XX PIPS ABOVE CURRENT PRICE

IF BBS

BUY MARKET ORDER GBPUSD
SELL MARKET ORDER EURUSD
PLACE A...

Check this thread- posts 12 and 13.
It has a great indicator and a great entrance method.
It's similar and may help.

http://www.forexfactory.com/showthre...95#post1528195
  • #16
  • Last Post: Feb 12, 2009 1:33pm Feb 12, 2009 1:33pm
Quoting billbss
Check this thread- posts 12 and 13.
It has a great indicator and a great entrance method.
It's similar and may help.

http://www.forexfactory.com/showthre...95#post1528195

Not sure how to interpet that indicator. How would you use it to use this system?
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