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Hedge and Correlation Strategy

  • #381
  • Jul 27, 2009 9:32am Jul 27, 2009 9:32am
Quoting jeffreytp
I have been following this for some time now and started earning great pips in FXCM demo. I just ran all the Mataf daily correlations and sought out the highest ( > -70%) correlations and matched them up with what FXCM offers as far as pairs go. These setups should help you out.

Click on the images to enlarge


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Recent entry
Closed trade
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  • #382
  • Jul 27, 2009 9:33am Jul 27, 2009 9:33am
Good job!

I just trade one time-frame (30 min), makes it easier on me. I try to keep it simple.

So far, since the market opened yesterday I'm up 179 pips trading both correlated and non-correlated. I'm going to keep track of pips earned this week.

Quoting T.E.Lawrence
Nice! Today I've made my 1st trade with negatively correlated pair (euro - swissy) and this pair is real beauty. It moves pretty often sideways and currencies are mirroring themselves. +75 pips.

P.S.

Often I close my position when I see -20 pips loss and then enter in better place. I try to employ some money management rules. Also when I finished trading on 15 min tf, I go to 30 min and if there the gap is still opened I enter the trade once again.

But what you do when there are conflicting gaps on different time frames? I.E. on 5 min euro on...
  • #383
  • Jul 27, 2009 9:34am Jul 27, 2009 9:34am
Quoting jeffreytp
Closed trade
Attachment
I took roughly the same trade, got 32 pips out of it.
  • #384
  • Jul 27, 2009 9:53am Jul 27, 2009 9:53am
I just entered 3 orders

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  • #385
  • Jul 27, 2009 10:07am Jul 27, 2009 10:07am
Quoting jeffreytp
I just entered 3 orders

Attachment
Looks excellent! I've been in the Cad/Jpy Usd/Cad one in drawdown for about 4 days now.
  • #386
  • Jul 27, 2009 12:01pm Jul 27, 2009 12:01pm
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  • #387
  • Jul 27, 2009 1:14pm Jul 27, 2009 1:14pm
The little time I've been able to spend looking and taking these trades, the more I wonder if it's supposed to be this easy LOL

Good work everyone!
  • #388
  • Jul 27, 2009 1:31pm Jul 27, 2009 1:31pm
+ 15 pips

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  • #389
  • Jul 27, 2009 1:34pm Jul 27, 2009 1:34pm
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  • #390
  • Jul 27, 2009 3:56pm Jul 27, 2009 3:56pm
Hey jm1941 and markfx,

Earlier you guys mentioned a chart setup where you "zeroed out" the overlaid pairs at some low volatility time. How are you doing that mechanically? i.e. is it using the dailyfx charts or are you doing it on MT4?

I'm using a custom indicator that lets you throw up 2 pairs and invert one if it's negatively correlated. I was thinking along the same lines y'all were with regard to a zero-out starting point. But I'm not seeing how to do this with my setup.
You are in a maze of twisty little passages, all alike.
  • #391
  • Jul 28, 2009 12:22am Jul 28, 2009 12:22am
Quoting Dreamliner
Looks excellent! I've been in the Cad/Jpy Usd/Cad one in drawdown for about 4 days now.
You mean it's a losing trade?
  • #392
  • Jul 28, 2009 1:34am Jul 28, 2009 1:34am
I think that's what he means...

Quoting T.E.Lawrence
You mean it's a losing trade?
  • #393
  • Jul 28, 2009 1:45am Jul 28, 2009 1:45am
Quoting redart007
I think that's what he means...
From my experience it's a zombie trade - it moves, but it's already dead.

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  • #394
  • Jul 28, 2009 2:05am Jul 28, 2009 2:05am
My today entry:

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  • #395
  • Jul 28, 2009 2:21am Jul 28, 2009 2:21am
Quoting T.E.Lawrence
My today entry:

Attachment
I've just exited this trade 'cause it went against me -24 pips. I'll wait for better entry when gap will have stopped developing.

In my opinion it's important to watch a gap on different time frames. For instance, to check a bigger time frame to see if the gap is also developing there, so there is potential for the gap to get bigger.
  • #396
  • Jul 28, 2009 3:39am Jul 28, 2009 3:39am
Ok, looks like the gap has stopped expanding. New entry:

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  • #397
  • Jul 28, 2009 3:44am Jul 28, 2009 3:44am
Quoting T.E.Lawrence
I've just exited this trade 'cause it went against me -24 pips. I'll wait for better entry when gap will have stopped developing.

In my opinion it's important to watch a gap on different time frames. For instance, to check a bigger time frame to see if the gap is also developing there, so there is potential for the gap to get bigger.
... when EURCHF will be trending like in the attached image, you are going to be losing all the time. EURCHF was in steep downtrend for over 8 weeks and went down nearly 1300 pips. And that's just one example.

These correlations don't work, they do only when a cross pair is ranging. Once it starts trending heavily you get caught in drawdowns and losses...
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  • #398
  • Jul 28, 2009 4:02am Jul 28, 2009 4:02am
Quoting Dreamliner
If we go long EUR/USD and short GBP/USD which direction are we trading EUR/GBP?

If we go short EUR/USD and long GBP/USD which direction are we trading EUR/GBP?

Thank you for helping me understand.
Sorry, I do not go here very often. Let me explain:

- if you go long EURUSD, you actually buy EUR and sell USD (you are short USD),
- if you go short GBPUSD, you actually sell GBP and buy USD (you are long USD in this case)
- in total, you are neutral in USD (or almost, depends what lot sizes you used), you are long EUR and short GBP, that means you are actually long EURGBP, you just paid more on spread.
  • #399
  • Edited 5:37am Jul 28, 2009 4:51am | Edited 5:37am
How to calculate market neutral hedge
(it is pointless to do so, this is just for demonstration)

EURUSD rate 1.4273
GBPUSD rate 1.6523
EURGBP rate 0.8637

Now, do this on your demo account:
a) 1 lot long EURUSD (you are long 1 lot EUR, short 1.4273 USD), we should buy back the USD now by selling GBPUSD

b) go 1.4273 / 1.6523 = 0.8638 lot short of GBPUSD. You are 0.8638 lot short of GBP and 1.4273 (0.8638 lot @ 1.6253 rate) lot long USD. So, by the two above orders we neutralized USD, we are now long 1 lot EUR and short 0.8638 lot GBP (in other words, you are long 1 lot EURGBP @ 0.8638)

c) go 1 lot short EURGBP, i.e. you sell 1 lot EUR and buy 0.8637 lot GBP

... voila, you are now totally neutral (almost). If I was not rounding numbers and there was no spread and swap, and executed orders very quickly, my total balance would be $0. But in reality you get cought in spread value and everyday swap.

This is just to show that trading EURUSD vs. USDCHF you are not hedging anything, you trade EURCHF. The same for EURUSD/GBPUSD = EURGPB, EURJPY/GBPJPY = EURGBP, etc.
  • #400
  • Jul 28, 2009 4:55am Jul 28, 2009 4:55am
Quoting hotstorm
How to calculate market neutral hedge
(it is pointless to do so, this is just for demonstration)

EURUSD rate 1.4273
GBPUSD rate 1.6523
EURGBP rate 0.8637

Now, do this on your demo account:
a) 1 lot long EURUSD (you are long 1 lot EUR, short 1.4273 USD), we should buy back the USD now by selling GBPUSD

b) go 1.4273 / 1.6523 = 0.8638 lot short of GBPUSD. You are 0.8638 short of GBP and 1.4273 (0.8638 lot @ 1.6253 rate) lot long USD. So, by the two above orders we neutralized USD, we are now long 1 lot EUR and short 0.8638 lot GBP...
Anyway, we're making money somehow.















...which is nice.
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