Hedge trading spieler system derived from futures spread trading

AFTER THAT HUGE SPIKE UP( very unusual on paires involving chf ( cannot remember of a thing like that before) i will not make a buy before waiting if the new price is correlated and it takes 2/3 weeks to be sure .
i will take only the short signals

Hi everyone+spieler,

Finally we had some recorellation today and some real down movement. the area around 15310 has been a strong support these last days but it was finally broken at around 1pm GMT.

we still have a long way to go before it comes back to 0% (it might never come back) in the meantime I am trying to 'externalize' some profit and hope for more recorellation...

how are you managing your positions? any ideas to help out? Is Richard also still around? Are you still trading with spieler's strategy?

Cheers,
BD

Hi everyone again,

i found this article : http://www.cnbc.com/id/29643090
who seem to describe the reason why we got such a huge spike on March 12th...

So spieler do you think that we should now be watching the meetings of the SNB?

Cheers,
BD


Dollar, Euro Soar vs Swiss Franc After SNB Intervenes
By: Reuters | 12 Mar 2009 | 12:16 PM ET

The U.S. dollar and euro jumped against the Swiss franc Thursday after the Swiss National Bank said it was intervening in the market as it faced the growing risk of deflation. In a statement, a spokesman for the Swiss central bank said it was "implementing'' its decision to buy foreign currencies. The SNB also cut interest rates on Thursday by a quarter point to a historic low, offering three-, six- and 12-month funds at 0.05 percent.

The SNB, which last intervened in August 1995, further said it will buy not only foreign currencies but bonds as well.Switzerland is facing its worst recession in over three decades. In midday New York trading, the dollar rose over 3 percent to near 1.190 francs, on track for its biggest one-day gain since August 1995. It rose as high as 1.1965 francs, a three-month high, according to Reuters data. The Swiss franc is one of the world's most traded currencies, at times prized as a safe haven for investors. The euro climbed to 1.5302 Swiss francs, the highest since December. It last traded at near 1.52, up over 2 percent, the euro's best day ever against the Swiss currency. SNB's move to zero rates and quantitative easing was expected, traders said, but the immediate move to intervene was a surprise. Bank of New York-Mellon senior currency strategist Michael Woolfolk said "the way this was communicated was intended at maximizing its shock value.'' He said there were no hints from SNB officials ahead of time that intervention would be immediate. "They changed their economic outlook, they not only lowered interest rates to effectively zero but also announced quantitative easing and currency intervention. This was the full monty,'' Woolfolk said.

Poland, Hungary Benefit From SNB Action
Quantitative easing has been deployed by central banks in countries including Britain, where the central bank is buying assets with newly created money. Marc Chandler, global head of FX strategy, at Brown Brothers Harriman in New York said the SNB intervention should ease pressure on Poland and Hungary, two European emerging market countries seriously hit by the global credit crisis. These two countries had taken advantage of ultra-low Swiss interest rates, borrowing heavily in Swiss francs and investing in riskier assets. "The strength of the Swiss franc compounded their woes. Today's dramatic weakening of the Swiss franc may ease this pressure,'' said Chandler. Gains in the dollar versus the Swiss franc boosted the greenback against other major currencies such as the euro and sterling. The euro fell below $1.28. The single currency was also pressured by comments from European Central Bank President Jean-Claude Trichet that euro zone interest rates could be cut further.

The ECB cut its benchmark rate to a record low at 1.5 percent last week and economists expect another reduction to 1.0 percent, most likely in April. Sterling fell to almost $1.38. The SNB news overshadowed all other events and data in the market including U.S. retail sales numbers that were better than expected and weekly jobless claims data that were not far from analysts' forecasts. Against the yen , the dollar erased early losses, partly because of firmer U.S. stocks, still one of the key drivers in the currency market. Stocks were lifted by energy shares and the U.S. retail sales report. The dollar rose to more than 97.

Copyright 2009 Reuters.

It seems that the Swiss National Bank (SNB) made an implicit floor in the price of the EUR/CHF pair because it wouldn't make much sense to weaken your currency for only a few days. If they feel that this is the right level wouldn't it be safe to say they plan on keeping it there? I'm not sure what the exact level is but 1.5270 seems to be a stong area of support. Now I know that this system isn't based on support/resistance or stuff like that but does this situation with the SNB make that something to pay attention to when taking short positions?

Spieler,
To correlate with Lenoxer's question, I find it interesting that your guage for increasing the minimum divergence needed to enter a trade is based on the ATR of the EUR/USD instead of the EUR/CHF. Could you expand on this? It appears that you take the daily EUR/USD ATR and use 1/4 of that as the starting point for your progression, is that correct? Also, looking at the ATR on a EUR/USD daily chart I can't determine which period you are using because everything from 10 to 200 shows the volatility increased out of the 100 range back in September or October of last year and is now down significantly from its peaks in November and December. Could you please expand on this as well?
Thank you very much for all of your help, patience, and information.

i choose EUR/USD as my reference because this is the most traded paire on earth so almost every cross has to do with that one.

Why 0,25%?
WHy not could i answer.
The % in not that important because entry point is not that important.
If you remember we are not looking for a sharp entry point like break out technics we are just seeking an acceptable one and work around it.
I took thi slevel years ago ( was 0,20 at the origin) because was a level where we had sufficient pull back to externalise profits.
Why 0,50 now? this has nothing to see with an arythmetic formula as explained ( all these crazy mathematicians kill bank balance sheets year after year) but as what i see on the market.
once more can be 0,40 and still being profitable, the real core of the system is how working positions in externalising profits even when you are stuck in a bad trade.

Hey Spieler.
I know you manage a fund and have traded with several groups. How widely used is this among the trading houses? Do you think e.g. someone at Goldman&Sachs is trading like this?
Just curious...

Where can I find ATR(Average trading range?) statistics?

Hi everyone,

I found this article who is related to the last week intervention of the SNB who made the swissy move in such a strong way:

cheers,
BD

http://www.forexcrunch.com/forex-war-will-europe-join/

In this deep economic crisis, everyone wants a weak currency. Europe’s export-oriented economy is suffering from a strong currency, especially after the moves from Switzerland and from America. Will they stay on the sidelines or intervene?

The Japanese economy is export based, and has significantly suffered from the global economic crisis. A strong currency is very bad for the Japanese economy. The strong Yen has been reflected in Japanese companies’ reports.
When USD/JPY reached 87, the BOJ and the Japanese government were quite frightened, yet they refrained from intervening in the forex market. Lucky for them, the Yen has depreciated since then, allowing the Japanese policymakers to breath…

Contrary to Japan, Switzerland didn’t stay on the sidelines: they saw how the relatively strong Swiss Franc is hurting their economy and made a bold move: they began dropping Francs in the open market, causing a sharp fall in the value of the CHF.

The SNB’s move was described as the start of a global “forex war“. In this article by Kathy Lien, she describes the Swiss move as a break of the unspoken truce not to intervene in the markets.

This week’s stunning announcement by the FOMC sent the dollar down. They’re actually spilling 1 trillion dollars ($1,000,000,000,000) into the market. This money printing by the Federal Reserve devalues the dollar, similar to Obama’s stimulus package.

This huge move from the FOMC affected all the currencies, but had a stronger impact against the Euro. EUR/USD broke many resistance levels and stopped to rest only at 1.3730, about 600 pips higher than before the announcement, and about 1000 pips higher than it traded in the past few weeks.

European policy makers have all the reasons to be worried: growing unemployment in the Euro zone, strikes in France, and the fear that Eastern European countries will go bankrupt, loom over the old continent.
Now, with a stronger currency, exports from Europe are less attractive, less competitive. Scary for Europe!

Jean-Claude Trichet and his fellows have acted slowly on this crisis: they lowered interest rates rather slowly, and even showed optimism. A higher currency should wipe the smile of his face.

With the Swiss and American moves and the deteriorating economy, the ECB could join the forex war. Devaluing their currency will sure help Europe.
On the other hand, the ECB’s cautious behavior until now and the slow European mentality could make them refrain from such moves.

What will Jean-Claude Trichet do?

PS:
GO SEE THIS ARTICLE TOO:
http://www.forexcrunch.com/usdchf-br...firm-decision/

Dear Spieler,

Is there a risk with all this Swiss intervention that the EURUSD/USDCHF correlation will breakdown over time?

Lenoxer

I downloaded breakout panca eagle indicator and i dont know how to use it. Can anybody there teach me how it works. I saw a box follow by sudden breakout. Somebody should explain. Thanks

Incorrect thread for that question.

You will be able to find the panca eagle thread within the trading systems forum.

JC

I DONT THINK CORRELATION WILL CEASEwith that
but we need to stay vigilent

First of all, I'd like to thank Spieler and all the other regular members who make this thread so great! I became aware of this thread about 2 weeks ago and have read it through and started to demo the system. So far, it seems like a great system!

I've been trading forex for over 3 1/2 years and have not had much success. I've tested many, many systems and blown up 4 accounts in that time. I have started to turn to binary trading and found some success there over at the HedgeStreet exchange. But I am still somehow drawn to spot forex and am still out there actively searching for systems and trying my own ideas out as well. When I stumbled onto this thread, it opened up a whole new world of trading for me that I wasn't very aware of: pairs trading, a.ka. statistical arbitrage. This is truly fascinating stuff! In the last 2 weeks I have made a lot of (demo) money with Spieler's StatArb system on EURUSD/USDCHF. And I am confident that we as followers of this thread can use this system in the long run to generate nice returns!

I want to start contributing to our learning and growing process, so I am attaching a few files that I hope will help you with your understanding and application of this awesome system.

1) An eBook on Statistical Arbitrage

2) An MT4 indicator based on the Pearson product-moment correlation coefficient that was freely posted over at Forex-TSD by a great contributor 'mladen.' I'll post the indicator here but this is the link if you want to read the thread over there http://www.forex-tsd.com/indicators-...rrelation.html

This indicator is extremely helpful at visually identifying decorrelation/recorrelation in the EURUSD and USDCHF.

3) Three articles on pairs trading:

Spieler: Like Lenoxer, I am also concerned about the potential for a gradual breakdown in the correlation between the EURUSD and USDCHF in light of recent events. Since you experience doing StatArb on other financial products, could you help us in being proactive to identify various other possibilities for exploiting correlation?

I can think of a few:

 

1. Oil & USDCAD
2. Chicago wheat and Kansas City wheat futures
3. S&P500 and DOW e-minis

I think it would be helpful to compile a list so that we can have a back up plan to continue pairs trading if this EURUSD/USDCHF correlation were to ever breakdown. If that is outside of the scope of this thread, maybe we can start another thread with a running list contributed by members.

In the meantime, let's hope the EURUSD and USDCHF will continue to agree to disagree when it comes to direction!

Spieler,
You have mentioned in the past that you use propreitary systems to tweak your entries and exits. While I don't expect you to share those with us I was wondering if one of them might have to do with how correlcated the E/U and U/C are at the time you want to start a progression. I ask because there have been some trades where the E/C retraced to my exit point and the overall position was not profitable. It doesn't happen often but it makes me wonder if my entry happened to correspond with a time where they two pairs weren't negatively correlated and as of yet I haven't deduced a way to check other than visually making sure the charts look like they are going in opposite directions. Do you have any guidance on this point?
Also, you have mentioned you trade the E/C directly sometimes. Please expand on why you would switch and how, if at all, that changes your trading plan.
Finally, you mentioned that you trade other strategies and since I'm such a big fan of this one I was wondering if you had considered starting another thread to share those with us?
Thanks,
mackus

"as of yet I haven't deduced a way to check other than visually making sure the charts look like they are going in opposite directions."

If you have an MT4 platform with your broker you might want to take a look at that Pearson MT4 indicator I attached. It gives you a great visual of correlation and you can see when it breaks down and regathers.

Thanks for the Pearson! Works great!

I've attached 2 charts below of the EUR/CHF H1 and M30 with the Pearson indicator included. As you can see there is a significant difference between the correlation of the 2 time frames. Should we only enter positions when certain time frames are in agreement in the level of correlation between the two pairs? It seems to me that the relevance of this information is dependent on how long the trade will be open.

mackus: I don't have the Pearson attached to the EURCHF chart as you do, instead mine is attached to the EURUSD. The way you have it, as you probably know, it is showing the correlation between EURUSD and EURCHF and then between USDCHF and EURCHF. The EURUSD is positively correlated with EURCHF and there is some negative correlation between USDCHF and EURUSD over the long term.

However, I am more interested in looking at the direct correlation between EURUSD and USDCHF so I stick the Pearson with USDCHF parameter onto a EURUSD chart. I use a 15 minute chart and a 20 period correlation. There are many different ways one can approach this indicator. What I do is wait for the pair to achieve less than -90% correlation (re-correlated) and then trade in anticipation of the de-correlation. You could also do the reverse of this, when the Pearson climbs above -50% you can play the re-correlation.

With the screenshot attached, this signaled a BUY-BUY in anticipation of a de-correlation, which you can see resulted in both EURUSD and USDCHF climbing BRIEFLY (losing negative correlation). I am only going for 10 pips at a time on the 15 minute time frame. As you mentioned, your profit strategy will be different with higher timeframes. Hope this example helps!

Well a lot of questions and some are very smart
So i cannot answer

again it is VERY important to have bad memory to do stat/arb because correlation of last week is almost dead and that's why working the position is the most important part of the job.
Stat/arb is ; according to me , one of the safest way to trade forex market but dont expect 100% per month.
So far for 2009 i am up 26% ( 10% january, 6% february and 10% march) and that's enough for me.

You can trade that way on so many things that it will take too long to sum it up. ( you can do it for exemple on equities on 2 companies in the same biz with same per and parameters)
It still work on futures between fce ( french future of cac40) and Eurostsoxx future because a lot of companies being in the cac40 are in the eurostoxx.
Eurostoxx is more efficient so you can benefit for the lag
You can certainly find things like that in the usa.
I used to make stat /arb between korean futures and japan ones years ago.
The reason i swaped to forex is because i travel a lot and so can always find a window for trading.
As for others systems ( i have some which i consider to be solids) i will share one one of these days , i just need more time and it will be prejudicial to my golf handicap.