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Hedge and Correlation Strategy

  • #301
  • Jul 21, 2009 9:17am Jul 21, 2009 9:17am
I just wonder why I lost so many pips when I was entering at a big gap, and exiting when currencies met together. It's like I'm watching the trade and don't understand why I have red pips even when everything is going according to the rules.

I always long and short the same amount - 10 000 units for eur/usd and gbp/usd.

That's why it's important to post charts so we can visually learn something - you know - those faint clues that go to your guts and not a brain ;-)

P.S.

And yes - bring on the mighty indicator!
  • #302
  • Jul 21, 2009 9:19am Jul 21, 2009 9:19am
Quoting Jm1941
No I haven't posted it yet. I don't want to clutter things up posting half assed code. I'm still tweaking and testing. No idea if/when it will ever be ready for prime time, but when I'm happy that it is working well I will post it.

Honestly though, it is just an MT4 implementation of the Pairs.xls graph. So in the meantime people can enter data into that (the close price will be what you want) and see historically as far back as you want, what the historical range is. You can continue to add to it as new bars close. I would suggest 1 hour bars....
OK but most definitely the indicator would be better. Some of us barely know what Excel is, much less how to open it, or use it, especially in a trading type environment.

So post the half-ass code
  • #303
  • Jul 21, 2009 10:48am Jul 21, 2009 10:48am
Are you talking in general or your last trade?

[quote=T.E.Lawrence;2890400]I just wonder why I lost so many pips when I was entering at a big gap, and exiting when currencies met together. It's like I'm watching the trade and don't understand why I have red pips even when everything is going according to the rules.

I always long and short the same amount - 10 000 units for eur/usd and gbp/usd.
  • #304
  • Jul 21, 2009 11:29am Jul 21, 2009 11:29am
[quote=redart007;2890691]Are you talking in general or your last trade?

Quoting T.E.Lawrence
I just wonder why I lost so many pips when I was entering at a big gap, and exiting when currencies met together. It's like I'm watching the trade and don't understand why I have red pips even when everything is going according to the rules.

I always long and short the same amount - 10 000 units for eur/usd and gbp/usd.
No, my some previous trades.
  • #305
  • Jul 21, 2009 11:46am Jul 21, 2009 11:46am
Don't trust the crappy overlay charts from dailyfx.com. They correct and 'repaint' the correlation all the time and there are huge differences when you compare the time frames. On some TFs there is a gap, on others there is no gap at all or already closed. Crap...
  • #306
  • Jul 21, 2009 11:53am Jul 21, 2009 11:53am
Lawrence, the reason you lost large may be that you went long/short the wrong way round. If, for the sake of argument, Pair 1 had moved down 100 pips since open, and Pair 2 had only moved down 25 pips, then you need to go long on Pair 1 and short on Pair 2 (assuming we are at the bottom of pair's range). The idea being that Pair 1 is the big mover. You want to trade in the correct direction for the faster/larger moving pair. If not, you'll be down pips instead of up.
  • #307
  • Jul 21, 2009 11:57am Jul 21, 2009 11:57am
I also should point out, as someone else had before, that 2 lines on a graph, with one being above the other, do not accurately show which pair to short and which to long.
  • #308
  • Jul 21, 2009 12:23pm Jul 21, 2009 12:23pm
Hi,
Dreamliner put a doc file with some pictures of his trade last week.
I wanted to see if I could get it to be near the same on Metatrader.

And it worked.

Take a look at this picture to see how it was done.

Or maybe you already knew that... Anyway successful trading to all.


Quoting Dreamliner
I guess it needed to be in a different format. Here is the picture for the above trade.
Attached Image (click to enlarge)
Click to Enlarge Name: Scale Fix Chart.jpg Size: 200 KB
  • #309
  • Jul 21, 2009 12:28pm Jul 21, 2009 12:28pm
So what should I use instead of dailyfx?

And no, I executed trades properly. What you can see sometimes when the gap is closing is drifting of currencies - they move together with small gap between for long time generating loss. In the middle of the trade i have +60 pips and at the end -100 pips.

On example for instance of my previous trade:

Quoting T.E.Lawrence
New trade:

Attachment
and then:

Quoting T.E.Lawrence
Looked like perfect trade, right? -120 pips.

Now I see we need to incorporate money management and stop losses. Waiting for a bad trade to change into the good one doesn't work - the pairs cross back and you're still left with many red pips; even after 12 hours, a 5min TF trade doesn't look like something is going to change.
  • #310
  • Jul 21, 2009 8:25pm Jul 21, 2009 8:25pm
this might sound pre schoolish but i wanted to know how many currency pairs that you can do this strategy with i would love to learn this trading strategy in and out .
  • #311
  • Jul 21, 2009 8:31pm Jul 21, 2009 8:31pm
Quoting newway
this might sound pre schoolish but i wanted to know how many currency pairs that you can do this strategy with i would love to learn this trading strategy in and out .
Look on Mataf and see what pairs you'd like to trade, whether positive or negatively correlated, and choose those you like.

I've been using negatively correlated and making a killing, lately.
  • #312
  • Jul 21, 2009 8:43pm Jul 21, 2009 8:43pm
Quoting Dreamliner
Look on Mataf and see what pairs you'd like to trade, whether positive or negatively correlated, and choose those you like.

I've been using negatively correlated and making a killing, lately.
THANKS dreamliner I'm looking at it now I've been going threw this thread and trying to understand when one currency pair is -1 or +1 from the other currency pair that correlated pair got kind of confusing is there something i can read in lamens term thanks
  • #313
  • Jul 21, 2009 8:51pm Jul 21, 2009 8:51pm
Quoting newway
THANKS dreamliner I'm looking at it now I've been going threw this thread and trying to understand when one currency pair is -1 or +1 from the other currency pair that correlated pair got kind of confusing is there something i can read in lamens term thanks
Well I can tell you what I do. At Mataf look at the correlation tables, and select currencies that are -80 to -90, then put those currencies on DailyFX charts, wait until there is a gap and enter.

Any more questions just ask.
  • #314
  • Jul 21, 2009 9:05pm Jul 21, 2009 9:05pm
Quoting Dreamliner
Well I can tell you what I do. At Mataf look at the correlation tables, and select currencies that are -80 to -90, then put those currencies on DailyFX charts, wait until there is a gap and enter.

Any more questions just ask.
-80 to -90 apart from each pair on mataf for example
eur/gbp chf/gbp are -93.7 so that would be a good one to trade if i'm reading the chart right?
  • #315
  • Jul 21, 2009 9:59pm Jul 21, 2009 9:59pm
Quoting hotstorm
... because trading EURUSD vs. USDCHF is nothing else than trading EURCHF. The same for e.g. EURUSD/GBPUSD, you are trading EURGBP. This has been said many times in all forex forums. You are wasting your time trying to trade these correlations...

You may get a feeling it works for some time and that is just because EURCHF is quite "lazy" and is ranging most of the time - this is the time correlation strategy may work. Once it gets trending strongly you will lose all.
I've just about finished reading this thread from start to finish and really think it's time to throw my 2 pips into the fire (so to speak).

I've read over and over that trading pairs like EURUSD vs USDCHF is the same as trading EURCHF. That may be true but you miss the point of watching the correlation between the two. It's just a SIGNAL. Like any other indicator signal. It tells you which way to trade it. That's all. The people trading this are just using this relationship to tell them which way to trade.

Now the question of whether to trade 2 pairs (one long and one short) vs just going long or short the equivelant pair is a legit question, but I fail to see why that means using the relationship between 2 pairs can't possible be a good indicator to trade with. Personally I think it can be a GREAT indicator to use to trade. I look forward to more of this. Thanks to all those involved in a positive way.
  • #316
  • Jul 22, 2009 1:28am Jul 22, 2009 1:28am
Quoting Alderlug
Don't trust the crappy overlay charts from dailyfx.com. They correct and 'repaint' the correlation all the time and there are huge differences when you compare the time frames. On some TFs there is a gap, on others there is no gap at all or already closed. Crap...
Quoting Jm1941
I also should point out, as someone else had before, that 2 lines on a graph, with one being above the other, do not accurately show which pair to short and which to long.
So what would you recommend instead of dailyfx charts? Is there any MT4 indicator that shows correlation correctly without repainting?

I also noticed sometimes when I look back at the chart, it's like: where the hell is that gap I traded few hours ago?
  • #317
  • Jul 22, 2009 2:21am Jul 22, 2009 2:21am
Quoting newway
-80 to -90 apart from each pair on mataf for example
eur/gbp chf/gbp are -93.7 so that would be a good one to trade if i'm reading the chart right?
Yes, if that is on the daily, not hourly.
  • #318
  • Jul 22, 2009 3:07am Jul 22, 2009 3:07am
Although with negatively correlated pairs your expecting them to stay apart so a gap is usual and should increase - when they are together is the exception? - so if we are trading a large gap we want the currencies to be +80 +90 so they come together - correct me if I have misunderstood you. thanks


Quoting Dreamliner
Well I can tell you what I do. At Mataf look at the correlation tables, and select currencies that are -80 to -90, then put those currencies on DailyFX charts, wait until there is a gap and enter.

Any more questions just ask.
  • #319
  • Jul 22, 2009 5:05am Jul 22, 2009 5:05am
Hi,
If you buy gbpusd and sell eurusd it's like selling eurgbp and vice versa, but paying bigger spread, think about that
so obviously you are playing eurgbp like a range, but it has trend some times
Regards!
  • #320
  • Jul 22, 2009 7:27am Jul 22, 2009 7:27am
Trade 1:
EURUSD Short 15,000
GBPUSD Long 15,000

Exposure 1:
EUR Short 15,000
USD Short 3,327
GBP Long 15,000

Trade 2:
EURGBP Short 15,000

Exposure 2:
EUR Short 15,000
GBP Long 12,972

The two are very similar, but not exact. The exposure values very depending on the value of the GBP and EUR at the time of the trade.
Personally, I like the flexibility of trading the two currency pairs as opposed to the single EUR/GBP trade.

Coder
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