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Pair Divergence Method

  • #1
  • First Post: Mar 29, 2009 3:22pm Mar 29, 2009 3:22pm
Here is something I have been noticing for quite a while, and thought it time I got serious about it.

This is trading divergence between two highly correlated pairs.

I find the correlated pairs at
http://www.mataf.net/en/tools/correlation-table
I use the daily correlation chart.

Presently these pairs have a correlation factor of >80

EUR/USD - EUR/CHF
USD/JPY - EUR/JPY - GBP/JPY
EUR/USD - USD/CHF (Negative correlation)




The chart below shows the EUR/JPY and the GBP/JPY, together.
Basically, if one pair makes a lower low and the other does not, you buy the one that does not.

If one pair makes a higher high and the other does not, sell the pair that does not.

I wait until both pairs have turned in the direction of the trade, before entering.

On the charts, I have removed the candles/bars and replaced them with a Simple MA, 1 period, typical price.
This gets rid of the whiskers and a lot of the noise. Also, it works and I like it

I used a 14 ATR x 2 as both the SL and TP.

I chose this at random. It can be improved upon.

I used a 4H time frame. It can be traded on any time frame.



Here are the results of the chart shown.

8W - 0L
Total profit = 1640 pips.

This is from Feb.25, 2009 through last Friday.

Any questions and suggestions are welcome.
I'm sure it can be improved upon.
Also, double check my results. I may have overlooked some trades. If I did, I will correct the results.

I don't want any EAs or indicators or filters. This one will stand on its own.
Attached Image (click to enlarge)
Click to Enlarge Name: div.gif Size: 82 KB
  • #2
  • Mar 29, 2009 3:38pm Mar 29, 2009 3:38pm
thank U
and it seems great
bill...you test it only one day????
  • #3
  • Mar 29, 2009 4:06pm Mar 29, 2009 4:06pm
How are you calculating the correlation based on the 1 hour and daily figures when you are trading on a 4 hour chart?

For example on the hourly chart the coreelation between EURUSD and GBPJPY is good at 95.5 but on the daily it is quite low at 14.0

Looks an interesting system.

Mister ED
  • #4
  • Mar 29, 2009 4:12pm Mar 29, 2009 4:12pm
This strategy seems to looks right through the pair and correlates it with another similar one. Pretty interesting find you've got here. Will follow this thread.

One obvious downside with this is that, your eyes have to be glued onto the screen on both pairs to notice a setup. I'm not an expert with Metatrader 4 indicator coding though im learning. I think it would be handy to hear an alert when a setup presents itself.

Billbss I see on your post where it says no indicators but a simple alert for the system should be again useful
  • #5
  • Mar 29, 2009 5:11pm Mar 29, 2009 5:11pm
Quoting Mister ED
How are you calculating the correlation based on the 1 hour and daily figures when you are trading on a 4 hour chart?

For example on the hourly chart the coreelation between EURUSD and GBPJPY is good at 95.5 but on the daily it is quite low at 14.0

Looks an interesting system.

Mister ED


If I'm trading a 4H chart, I'll use the daily table.
If I trade lower than that, I use the Hourly.
The hourly correlated pairs, seem to change correlation a lot.

The best thing to do is list the correlated pairs from each chart. Look at their charts and see if they look like each other. If they do- trade them.
  • #6
  • Mar 29, 2009 5:13pm Mar 29, 2009 5:13pm
Quoting Ace284
This strategy seems to looks right through the pair and correlates it with another similar one. Pretty interesting find you've got here. Will follow this thread.

One obvious downside with this is that, your eyes have to be glued onto the screen on both pairs to notice a setup. I'm not an expert with Metatrader 4 indicator coding though im learning. I think it would be handy to hear an alert when a setup presents itself.

Billbss I see on your post where it says no indicators but a simple alert for the system should be again useful
I've never seen an indicator that can accurately detect divergence.
Usually, just a look at the charts being traded, will tell you if a set up is possible in the near future.

One indicator, I would like to have is something to invert a chart- flip it upside down.
That would make it possible to trade EUR/USD - USD/CHF.

I have one somewhere, but I be darned if I can find it.
  • #7
  • Mar 29, 2009 5:14pm Mar 29, 2009 5:14pm
Quoting $aly
thank U
and it seems great
bill...you test it only one day????
The chart I posted is for a month.
  • #8
  • Mar 29, 2009 5:22pm Mar 29, 2009 5:22pm
Hey Bill, I read you don't want any indis, but I have one that allows you to place two different pair on the same chart. It's useful to me for correlated trading. If you want, I'll post.

Also, some excellant dashboards can be made that will signal for you when different pairs are out of synch. I'm not talking about any kind of filter junk, just informational applications. Are you open to those being developed and posted?
  • #9
  • Mar 29, 2009 5:31pm Mar 29, 2009 5:31pm
Quoting BenQ
Hey Bill, I read you don't want any indis, but I have one that allows you to place two different pair on the same chart. It's useful to me for correlated trading. If you want, I'll post.

Also, some excellant dashboards can be made that will signal for you when different pairs are out of synch. I'm not talking about any kind of filter junk, just informational applications. Are you open to those being developed and posted?
Sure. I just don't want to load it down with MAs, MACDs fibs, pivots etc.

What you describe may be helpful.
  • #10
  • Mar 29, 2009 5:50pm Mar 29, 2009 5:50pm
BenQ can you please post that indi you mentioned?
  • #11
  • Mar 29, 2009 5:53pm Mar 29, 2009 5:53pm
Quoting billbss
Sure. I just don't want to load it down with MAs, MACDs fibs, pivots etc.

What you describe may be helpful.
ok, here's second chart courtesy of Serega Lykov. Place it on gbpjpy H4, for example, and enter eurjpy and 240 in the inputs and you'll have both on the same chart. I have a few others, and also one that does an inversion like you asked, but I have to dig those out.
Attached File(s)
File Type: mq4 SecondChart.mq4   10 KB | 4,544 downloads
  • #12
  • Mar 29, 2009 5:54pm Mar 29, 2009 5:54pm
Quoting BenQ
ok, here's second chart courtesy of Serega Lykov. Place it on gbpjpy H4, for example, and enter eurjpy and 240 in the inputs and you'll have both on the same chart. I have a few others, and also one that does an inversion like you asked, but I have to dig those out.
Thank you very much.
That will be helpful.
  • #13
  • Mar 29, 2009 6:09pm Mar 29, 2009 6:09pm
I think its better to use two different graphs.. but the inversion indi can be still useful.
  • #14
  • Mar 29, 2009 6:32pm Mar 29, 2009 6:32pm
Quoting BenQ
ok, here's second chart courtesy of Serega Lykov. Place it on gbpjpy H4, for example, and enter eurjpy and 240 in the inputs and you'll have both on the same chart. I have a few others, and also one that does an inversion like you asked, but I have to dig those out.

Thank you very much. I have scoured the forums, both Russian and here, but finally this is one of the most looked after indies I have wanted (I am a very mediocre wannabe programmer) and can basically only edit the code, but not knit it all together, like the professional coders who donate to these forums so graciously. Thanks for sharing Serega's indi with us. I'll work magic with this one.......... Ciao Ciao
  • #15
  • Mar 29, 2009 8:08pm Mar 29, 2009 8:08pm
Bill,
Thanks for this thread.
Could you put more examples here?

Bob
  • #16
  • Mar 29, 2009 8:27pm Mar 29, 2009 8:27pm
Hi Bill,

This looks very interesting but can you please post many more chart examples or give a more thorough explanation of each signal and when and where to take each trade. Thanks, Paris
  • #17
  • Mar 29, 2009 8:43pm Mar 29, 2009 8:43pm
Quoting Paris Hilton
Hi Bill,

This looks very interesting but can you please post many more chart examples or give a more thorough explanation of each signal and when and where to take each trade. Thanks, Paris
I'm working on some more charts, right now.
I'll probably have them up in a couple of hours.
  • #18
  • Mar 29, 2009 10:42pm Mar 29, 2009 10:42pm
Here are a couple more examples.

In the first chart, GBP/JPY is making a new High (4) and EUR/JPY (2) is not.
We will be going short on the EUR/JPY.
We wait until both pairs turn down together. That is where the arrow is. We go short EUR/JPY.
We set out SL at 2x ATR 14. We set out TP the same.

In the second chart EUR/JPY makes a new Low (2) and GBP/JPY does not.
We will buy the GBP/JPY when both pairs turn up.
This happens at the arrow.

We go Long GBP/JPY. The SL and TP are as described above.
Attached Image(s) (click to enlarge)
Click to Enlarge Name: div2.gif Size: 75 KB
Click to Enlarge Name: div3.gif Size: 77 KB
  • #19
  • Mar 29, 2009 11:31pm Mar 29, 2009 11:31pm
Hello Bill;

Looks like a a nice simple correlation/divergence strat. worth taking a gander. Thanx for sharing.

TimeFreedom
  • #20
  • Mar 30, 2009 2:52am Mar 30, 2009 2:52am
The best way I know to compare two data sets on the same chart is to normalize the data. This would allow you to place all the pairs you want on the same charts with values between 0.0 and 1.0.

Just a random 3 AM thought.

Dan
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