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Hedge and Correlation Strategy

  • #101
  • Apr 3, 2009 12:13pm Apr 3, 2009 12:13pm
Easy pips, even on a Friday.
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  • #102
  • Apr 3, 2009 12:30pm Apr 3, 2009 12:30pm
Have a good weekend all.
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  • #103
  • Apr 3, 2009 12:44pm Apr 3, 2009 12:44pm
Quoting billbss
In case you didn't know, the Neutral Hedge Overlay repaints.

It begins x number of bars back and walks forward with each bar.

If you want to prove it, take a screen shot of it now and take another a day or so from now. To hurry the process, put it on 1M. You'll see it repaint quickly.

The wave shapes won't change, but the distance between the pairs change. You can't really pay any attention to pair disparity, because it's not accurate.
Hi I am new in forex, would appreciate if you could explain how to read "Neutral Hedge Overlay indicator". In other words what kind of signal it convey.

Thanks,
The purpose of knowledge is action, not knowledge
  • #104
  • Apr 3, 2009 1:10pm Apr 3, 2009 1:10pm
Quoting alifari
Hi I am new in forex, would appreciate if you could explain how to read "Neutral Hedge Overlay indicator". In other words what kind of signal it convey.

Thanks,
It places two pairs on the same chart.
  • #105
  • Apr 3, 2009 1:12pm Apr 3, 2009 1:12pm
Quoting billbss
It is if you like repainting indicators.
  • #106
  • Apr 3, 2009 1:21pm Apr 3, 2009 1:21pm
Quoting tokyomaster
Have a good weekend all.
Seems u have a take profit EA on your chart. Is it possible to share?
  • #107
  • Apr 3, 2009 1:45pm Apr 3, 2009 1:45pm
Ofcourse.

I will close ALL trades if your AccountProfit() > Input parameter.

It will also send you an email every time your balance increases. You need to set this up under tools/options/email

Enjoy.
Attached File(s)
File Type: mq4 Take Profit.mq4   1 KB | 2,352 downloads
  • #108
  • Apr 3, 2009 2:00pm Apr 3, 2009 2:00pm
Quoting billbss
In case you didn't know, the Neutral Hedge Overlay repaints.

It begins x number of bars back and walks forward with each bar.

If you want to prove it, take a screen shot of it now and take another a day or so from now. To hurry the process, put it on 1M. You'll see it repaint quickly.

The wave shapes won't change, but the distance between the pairs change. You can't really pay any attention to pair disparity, because it's not accurate.


I noticed that, too. I was flipping different time frames & noticed sometimes the pairs would swap position.

The danger is, say you've got EUR-USD & USD-CHF.
Now one is going to be above or below the other on the common chart. Then you're going to buy the lower & sell the higher & wait for the convergence. But heed the neg. correlation on USD-CHF.
But if you flip time frames, the pairs could exchange places, I found.
Now either one is higher than the other or it's not. But get sucked in on the wrong time frame & you'r on the wrong side of this hedge. And, further, if you were good doo-bee & place your stop losses, & then left that computer screen unattended, you could be royally screwed.

I'm going to look at this over the weekend. See if I can find out the central point of reference that the overlay indicator uses to affix a "ground zero" in order to super-impose the other pair onto the chart. It has to read a central reference point of some sort & I don't think it's data related. Maybe its merely as simple as the number of periods included in the image, without regard to price. I don't know.

This is the only hitch I can see so far, but then again I've only done 4 demo trades & 3 live trades so far. And one of the live trades I screwed-up because I got my position size differential mixed-up and simultaneously forgot to correct for a negative correlation. Fortunately I caught it. Price action just didn't look right. So I dumped the hedge & did some creative adding to the position to hedge it down to a net $.60 profit from what began as a $300.00 margin commitment. I don't have much hair to begin with, but I've got less now.

I'll put on my thinking cap over this one. You folks please do so as well. If anyone comes up with a solution, or at least a work-around, please speak-up. Put enough brains to work on this we might get it resolved.

Great weekend everyone.
  • #109
  • Apr 3, 2009 2:05pm Apr 3, 2009 2:05pm
I did ask the author of Neutral Hedge Overaly for the source code but have had no response.

It may be worth getting it reverse enginered.
  • #110
  • Apr 3, 2009 2:16pm Apr 3, 2009 2:16pm
Quoting petero
I noticed that, too. I was flipping different time frames & noticed sometimes the pairs would swap position.

The danger is, say you've got EUR-USD & USD-CHF.
Now one is going to be above or below the other on the common chart. Then you're going to buy the lower & sell the higher & wait for the convergence. But heed the neg. correlation on USD-CHF.
But if you flip time frames, the pairs could exchange places, I found.
Now either one is higher than the other or it's not. But get sucked in on the wrong time frame & you'r on the wrong side of this...
I don't think there's any way to fix it.
The Spieler thread, was dedicated to trying to get it to work to show the exact same thing you want it to show and it never worked.
  • #111
  • Apr 3, 2009 2:25pm Apr 3, 2009 2:25pm
Before entering a trade just makesure it says the same thing in all time frames.
  • #112
  • Apr 3, 2009 2:38pm Apr 3, 2009 2:38pm
Quoting tokyomaster
Before entering a trade just makesure it says the same thing in all time frames.
If the time frames agree, it's still coincidence.
The related pair is placed on the chart 72 bars back, regardless of the time frame. With each new bar, it advances a bar.

Whether one pair appears above another pair, is pure accident.

Even if it was accurate, negative correlation, doesn't require that the pairs come together, when they are apart. It only means that each bar, of the two pairs, tends to close in the opposite direction.
  • #113
  • Apr 3, 2009 2:41pm Apr 3, 2009 2:41pm
What about positive correlation, i.e. GBPJPY and EURJPY ?
  • #114
  • Apr 3, 2009 2:42pm Apr 3, 2009 2:42pm
Also, i looked on DailyFX and in 1H EURUSD is on top and in D1 EURUSD is on bottom.
  • #115
  • Apr 3, 2009 2:43pm Apr 3, 2009 2:43pm
Quoting tokyomaster
What about positive correlation, i.e. GBPJPY and EURJPY ?
Positive correlation means that the bars tend to close in the same direction. If the pairs are separated, they might well, continue to be separated, but moving in the same direction.
That doesn't lend itself to hedging.
  • #116
  • Apr 3, 2009 3:43pm Apr 3, 2009 3:43pm
Quoting tokyomaster
Also, i looked on DailyFX and in 1H EURUSD is on top and in D1 EURUSD is on bottom.

I wasn't aware of Daily FX chart does the same thing, Tokyomaster.

Thinking about the trade sequence, one only really needs the charts as a quick visual. Eliminates tons & tons of calculations.
The problem is reliability as to where the price on respective pairs is.
Maybe develop a test with MTF to see if the pairs remain on the same side of each other.

But then, a quick trip to Metaf.com gives you both the daily as well as hourly correlation relationships. Then, zoom back to MT-4 and decide which will be your "basis" chart, call that one up, then put the other pair on as your "indicator". I suppose a look-see in the "daily" TF compared to data from Metaf figures, from say 20-50 periods, will tell you if the chart is at least reasonably representative of the correlation relationship. I think looking at the charts in MTF, with the re-painting problem in mind, you'll be able to sort out the relationship. Hell, those charts with that indicator tells more in a single glance than it would take some one all week to explain what you're seeing.

I'm almost leaning toward 1 hr. TF as the baseline, and shoot to 4 hr. then Daily, & then back to 15 min then possibly 5 min. I'm not basing that on anything except that is what I did several times. I actually set-up, executed , and monitored the trade on 5 min. But I determined the viability from the 1 hour & confirmed with 4 hr., per Dreamliner's suggestion in post #1. I only used the 5 minute , too, because I could see better.

I don't know. Sorting this out or developing some rules or parameters is well worth it with this method. We just need to be careful that we're not chasing shadows or lying to ourselves, and even worse, this being Forex, that we're not talking ourselves into a trade because we've "willed" it to happen.
  • #117
  • Apr 3, 2009 4:21pm Apr 3, 2009 4:21pm
Quoting petero
I wasn't aware of Daily FX chart does the same thing, Tokyomaster.

Thinking about the trade sequence, one only really needs the charts as a quick visual. Eliminates tons & tons of calculations.
The problem is reliability as to where the price on respective pairs is.
Maybe develop a test with MTF to see if the pairs remain on the same side of each other.

But then, a quick trip to Metaf.com gives you both the daily as well as hourly correlation relationships. Then, zoom back to MT-4 and decide which will be your "basis" chart, call that one...

Corrlation doesn't mean, what you seem to think it does.
See my last post.
  • #118
  • Apr 3, 2009 9:53pm Apr 3, 2009 9:53pm
I suggest measuring correlation on open, high, low and close prices between time series instruments, i.e. eurusd vs usdchf. This has the advantage of limiting the drawdown.
  • #119
  • Apr 4, 2009 6:03am Apr 4, 2009 6:03am
You only need correlation on the open.
  • #120
  • Apr 4, 2009 6:17am Apr 4, 2009 6:17am
If you want to be sure which pair is really on top/bottom, then the iForce indicator is the best one to use.

Just check iForce for all timeframes, if they match then sell the one on top and buy the one on the bottom. But first makesure the correlation on the open of both pairs has positive of negative correlation, depending on what pairs you are trading.
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