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Hedge and Correlation Strategy

  • #481
  • Aug 2, 2009 7:31pm Aug 2, 2009 7:31pm
Quoting Jm1941
Is your broker a 5 digit broker? My broker is 4 digits so I haven't tested on a 5 digit broker, but it wouldn't surprise me if that screws up the math.
If that's not it, I have no idea why it wouldn't work.
Walk me thru step by step what you did with them once you downloaded them and I'll let you know if anything looks amiss...
I got it, now. The problem was my account with IBFX was a mini account and I needed to put a "m" after the pair.

Thank you.
  • #482
  • Aug 2, 2009 10:53pm Aug 2, 2009 10:53pm
Ok cool. Don't forget to reset the "zero" to todays open for your pairs...
  • #483
  • Aug 3, 2009 1:19am Aug 3, 2009 1:19am
Quoting rtx
Jeffrey its not the problem

Its the way like that charts are drawn, i dont know what companie´s charts are that, but dailyfx.com what have been shown here in this thread are doing same, and problem is that there are no fixed scale. so you cant say which cross is above and which below cause you need to have fixed vertical scale, and that is e/u vs u/ch and once you will have fixed vertical scale keep in mind that 1 pip of e/u is not same value like u/ch but i cant see it was not mentioned here previously so looks like noone of you care about...
Exactly! The difference in value of 1 pip of euro and swissy or cable also bothered me. Can anyone deliberate on this?
  • #484
  • Edited 2:51am Aug 3, 2009 1:37am | Edited 2:51am
Remember, in order to make your trades safer and avoid margin call:

1. use money management - is a must!

2. always confirm an entry using other 'ordinary' methods, like: s/r lines, watching for round numbers and other obvious s/r places, and whatever technical analysis which suits you
  • #485
  • Aug 3, 2009 3:09am Aug 3, 2009 3:09am
Quoting Dreamliner
Greetings all,

However, I have an announcement to make, and that is that I am stopping trading this method live, and would recommend everyone to do the same. The reason for this is because of some very well stated objections by people in this forum, showing that at times the markets will trend strongly. If I traded this method as I have this past week, in a highly trending market I would be wiped out.

We must find a way to keep this from happening. Possibly with the new indicator posted here there may be some advantage we can gain by using it....
This was brought up before, I noticed that for postively correlated pairs, one pair buy and one pair have hedged the trade but for negative correlated pairs ie eurusd/usdchf you have one pair buy and one pair sell which means there is no hedging and therefore run the risk of a runaway trade? if i were to trade the same as the positive correlated pairs when I buy eurusd , I would also buy usdchf?
  • #486
  • Aug 3, 2009 6:22am Aug 3, 2009 6:22am
How do you have the RSI indicators setup i.e what settings?

Quoting scooby-doo
I am not saying you are correct in trying to trade this method BUT if you want to then the safest way is the following...

Wait for all the bars to change to the same colour...

If the EURUSD is ontop of USDCHF and all the bars are red then SELL EURUSD and BUY USDCHF.

If the USDCHF is ontop of EURUSD and all the bars are green then BUY EURUSD and SELL USDCHF.

You should get out of the trade when all the bars change to the opposite colour or when your TP is hit.
  • #487
  • Aug 3, 2009 7:30am Aug 3, 2009 7:30am
Quoting redart007
How do you have the RSI indicators setup i.e what settings?
RSI 7
RSI 14
RSI 21
RSI 28

I will post the indicator and template file when i get home as i am actually at my place of work. (HSBC Trading Floor, London).

Also, there is pip difference between EURUSD and USDCHF. So you need to factor that in too.
  • #488
  • Aug 3, 2009 7:33am Aug 3, 2009 7:33am
Quoting scooby-doo
RSI 7
RSI 14
RSI 21
RSI 28

I will post the indicator and template file when i get home as i am actually at my place of work. (HSBC Trading Floor, London).

Also, there is pip difference between EURUSD and USDCHF. So you need to factor that in too.
It would be great. Are you going to post a template for euro-cable as well? Or is it difficult to change the settings on your own?
  • #489
  • Aug 3, 2009 6:31pm Aug 3, 2009 6:31pm
Quoting T.E.Lawrence
Exactly! The difference in value of 1 pip of euro and swissy or cable also bothered me. Can anyone deliberate on this?
Has anyone thought about normalizing the data. This approach would allow you to compare any major pair. I'm thinking that a conversion to dollars, followed by normalizing a fixed period of history would give some meaningful views.

Also, shouldn't the size of each pair in the hedge be value based versus something simple, like one lot of each.
.
  • #490
  • Aug 3, 2009 7:07pm Aug 3, 2009 7:07pm
You can zero out the dollar exposure with eur/usd and usd/chf.

current price of eur/usd x number of lots = usd/chf lots

ex. eur/usd @ 1.4414 x 10,000 = 14,414 usd/chf
  • #491
  • Aug 3, 2009 10:53pm Aug 3, 2009 10:53pm
"Has anyone thought about normalizing the data."

There is a spreadsheet called pairs.xls and a pdf about pairs trading that does the normalized pricing in post 235.
  • #492
  • Aug 4, 2009 2:41am Aug 4, 2009 2:41am
Anyone still trading this method live?

I stopped using dailyfx charts (just move the chart left or right - the gap will start changing and pairs will flip up and down).

Now I'm using only Jm1941's divergence indicator for hedging purposes only:

1. I spot the possible turning point for one pair (i.e. cable on top at round number like 1.7000 today)

2. I check the divergence: -103 pips

3. I sell cable and buy euro

I only use 15 min charts and do fast trades +20 - +30 pips. I will test this strategy and post my findings. For now it looks pretty cool.
  • #493
  • Aug 4, 2009 4:03am Aug 4, 2009 4:03am
Quoting weekapaugh
"Has anyone thought about normalizing the data."

There is a spreadsheet called pairs.xls and a pdf about pairs trading that does the normalized pricing in post 235.
Thanks! Exactly what I was thinking.
.
  • #494
  • Aug 4, 2009 4:35am Aug 4, 2009 4:35am
Does anyone understand it... and is there an easy way to update it?

Quoting redpine
Thanks! Exactly what I was thinking.
  • #495
  • Aug 4, 2009 7:46am Aug 4, 2009 7:46am
1 Lot of EURUSD = 1.34 Lot of USDCHF currently.
  • #496
  • Aug 4, 2009 7:49am Aug 4, 2009 7:49am
Quoting scooby-doo
1 Lot of EURUSD = 1.34 Lot of USDCHF currently.
Are you still going to post indicators and template you're using ?
  • #497
  • Aug 4, 2009 2:06pm Aug 4, 2009 2:06pm
Hi all!
I have for a while been thinking about this hedging thing and wanted to test the hedge system found here http://www.forexfactory.com/t/188200...dicator-1.html to see if it could possibly be played in a winning way. Maybe Jm1941 could help me with the programming.
  • #498
  • Aug 4, 2009 2:45pm Aug 4, 2009 2:45pm
Quoting T.E.Lawrence
Are you still going to post indicators and template you're using ?
Put the indicators into your MT4 indicator folder and the template into your MT4 template folder.

Remember, you need to ajust the lot size for EURUSD and USDCHF. The easiest way todo this is just divide EURUSD by USDCHF bid prices.

PS. I dont have the source code for the indicators.
Attached File(s)
File Type: ex4 NeutralHedge Overlay_v4.ex4   11 KB | 825 downloads
File Type: ex4 Pj-over RSI.ex4   4 KB | 865 downloads
File Type: tpl correlation eurusd and usdchf.tpl   2 KB | 864 downloads
  • #499
  • Aug 4, 2009 7:46pm Aug 4, 2009 7:46pm
Quoting scooby-doo
Put the indicators into your MT4 indicator folder and the template into your MT4 template folder.

Remember, you need to ajust the lot size for EURUSD and USDCHF. The easiest way todo this is just divide EURUSD by USDCHF bid prices.

PS. I dont have the source code for the indicators.
Can you please do a screen shot of the overlay indicator parameters? I can't get it work like yours.
  • #500
  • Aug 4, 2009 11:54pm Aug 4, 2009 11:54pm
Quoting weekapaugh
"Has anyone thought about normalizing the data."

There is a spreadsheet called pairs.xls and a pdf about pairs trading that does the normalized pricing in post 235.
There is a whole lot gems posted on this thread that gives this strategy a more methodological approach. This is one of them and there are other links posted by TE Lawrence
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