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Hedge and Correlation Strategy

  • #1,281
  • Sep 15, 2009 8:25am Sep 15, 2009 8:25am
  •  tmal
  • | Joined Oct 2007 | Status: Arrogant FX Bastards Club Member | 24 Posts | Online Now
Quoting SkyzerFX
EURO should drop like a stone soon, too high too fast..
good US numbers don't mean stronger USD!
  • #1,282
  • Sep 15, 2009 8:56am Sep 15, 2009 8:56am
closed gbp/usd - gbp/jpy: +40 pips net, didn't close at the smallest gap but decided to take the profit.
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  • #1,283
  • Sep 15, 2009 9:11am Sep 15, 2009 9:11am
  •  tmal
  • | Joined Oct 2007 | Status: Arrogant FX Bastards Club Member | 24 Posts | Online Now
Quoting weekapaugh
closed gbp/usd - gbp/jpy: +40 pips net, didn't close at the smallest gap but decided to take the profit.
what was your max. dd?
  • #1,284
  • Edited 9:29am Sep 15, 2009 9:16am | Edited 9:29am
Quoting tmal
what was your max. dd?

sadly, 110 pips so risk reward is pretty bad. I might of been able to hold on for more than 40 though.
  • #1,285
  • Sep 15, 2009 9:43am Sep 15, 2009 9:43am
...will you trade blindly? You guys should realise one basic point - most of the time you are trading a cross. Lawrence and others that lost on gbpusd and gbpchf - have lost because USDCHF was actually traded. Not only you payed double spread, but blindly entered a buy during an obvious down trend. Would Dreamliner care to explain this? Many pointed this out in this thread, but you refuse to listen - hoping for an easy way to trade. You got it! open a position in ANY direction on ANY market without ANY analysis and wait for it to fluctuate - hopefully you get 20-50 pips. Problem is when it goes against you, there is no protection. You dont know why its moving against you, thus you stay in the trade and lose everything. This is the method you are trading right now. Pairs trading is applicable to stocks, commodities and indices and still quite risky. In Forex if you wish to trade crosses - just open a chart, throw a linear regression channel on and sell at the top of the channel, buy at the bottom. Put you stop losses just above or below the channel respectively. I guarantee you'll make more money than trading blindly by following ideas on this thread. Thanks for reading, if you finished. I throw some pictures for example on GBPUSD and GBPCHF
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  • #1,286
  • Sep 15, 2009 9:44am Sep 15, 2009 9:44am
  •  tmal
  • | Joined Oct 2007 | Status: Arrogant FX Bastards Club Member | 24 Posts | Online Now
Quoting weekapaugh
sadly, 110 pips so risk reward is pretty bad. I might of been able to hold on for more than 40 though.
Not today, I think u did the best.
  • #1,287
  • Sep 15, 2009 9:55am Sep 15, 2009 9:55am
  •  tmal
  • | Joined Oct 2007 | Status: Arrogant FX Bastards Club Member | 24 Posts | Online Now
Quoting Petronix
...will you trade blindly? You guys should realise one basic point - most of the time you are trading a cross. Lawrence and others that lost on gbpusd and gbpchf - have lost because USDCHF was actually traded.....
There are many methods how to get in and I hope many of us use it. When is SL not used, then any trading is risky! And trading when a gap is "big" is quite risky.
  • #1,288
  • Sep 15, 2009 10:02am Sep 15, 2009 10:02am
Some jawboning like this could push the spread between

pairs like EU-GU to unreasonable levels

"
1417 GMT [Dow Jones] GBP/USD hit an intraday low, at 1.6426, from 1.6562 late Mon., according to EBS via CQG.
The pound is under pressure after BOE Governor Mervyn King said cutting the rates the BOE pays on deposits
could be a "useful supplement" to monetary policy. (BMD) "
Viewer Discretion Advised: Shall we shag now or should we shag later? :-)
  • #1,289
  • Sep 15, 2009 10:25am Sep 15, 2009 10:25am
So why cant it be applied here? Does it matter? its all risky? Its all a punt?

All the index's are correlated or not to some degree so if your trading dow/russell russell/sp nasdaq/russell as a spread they will move in the same direction but people trade them as spreads at certain levels or when they go out of correlatation - thats what were looking for here...it gives us an insight into one pair outperforming of under performing another. This method requires averaging something that isnt easily achieved when trading an outright.

I work in an office of spread traders and they go offside more than on, its risky but can be highly profitable with correct MM, trading a portfolio and taking profits to offset some inevitable losses.


Quoting Petronix
Pairs trading is applicable to stocks, commodities and indices and still quite risky.
  • #1,290
  • Sep 15, 2009 10:32am Sep 15, 2009 10:32am
mate...this is a bit of a tricky one. It actually depends if EURGBP breaksout of the channel or not. It is highly likely that it will bounce off the channel, thus you should be shorting EURGBP. If you still want to pay double spread go ahead and sell eurusd and buy gbpusd. I pay 3 pip spread on first, 2 pip on second. But when i trade EURGBP - only 2 pip spread now. so its 5 vs 2. And blindness vs actual analysis. its your pick. Be careful though, if it does breakout i wouldn't suggest you open this position. So thus there is a stop loss level @ EURGBP set at 0.8895 if current candle doesnt break out. It it does, just dont enter. heres a picture. cheers
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  • #1,291
  • Sep 15, 2009 10:39am Sep 15, 2009 10:39am
why bother, when you have a chart of the actual "performance" of 2 pairs that you can analyze and trade accordingly. Its much easier and less risky than pairs trading strategies for other investment instruments.
  • #1,292
  • Sep 15, 2009 10:43am Sep 15, 2009 10:43am
good night guys... 1.40am. my wifes gonna kill me if i sleep till 12 again. see ya
  • #1,293
  • Sep 15, 2009 10:59am Sep 15, 2009 10:59am
Channels, schmannels, next you'll be giving me Fibonacci's, if you want a highly likeley bounce go on a trampoline... Its depends on the EURO and the Pound as individual currency's. When we see a gap between EU and GU what it says it that the Euro and the Pound are usually correlated against the dollar - one is outperforming/underperfoming the other and there is an opportunity.

I don't pay any spreads and get market prices - just small commission. I am short EU and Long GU and can average to hopefully improve my overall position.

Quoting Petronix
mate...this is a bit of a tricky one. It actually depends if EURGBP breaksout of the channel or not. It is highly likely that it will bounce off the channel, thus you should be shorting EURGBP. If you still want to pay double spread go ahead and sell eurusd and buy gbpusd. I pay 3 pip spread on first, 2 pip on second. But when i trade EURGBP - only 2 pip spread now. so its 5 vs 2. And blindness vs actual analysis. its your pick. Be careful though, if it does breakout i wouldn't suggest you open this position. So thus there is a stop loss level @...
  • #1,294
  • Sep 15, 2009 1:05pm Sep 15, 2009 1:05pm
Quoting Petronix
mate...this is a bit of a tricky one. It actually depends if EURGBP breaksout of the channel or not. It is highly likely that it will bounce off the channel, thus you should be shorting EURGBP. If you still want to pay double spread go ahead and sell eurusd and buy gbpusd.
I don't even care about Technical BS anymore.. I just bought it

when I see correlation is out of whack. My Idea is, if I see that

EU/GU is in absurd mode, not to SELL EU but instead just BUY GU. I just

bought GU, GJ

Earlier, and no Stop LOSS.. I refuse to set SL.. I never used them..

I just average down.. Nothing goes 1 direction for long it always reverses..

Every Trade is a winning one, just a matter of time. And no one can time

Forex, Not indies, nor humans.. Every time I take a trade based on idies

it goes wrong direction.. What you want me to do? Take Stop Losses all day long..?

GU is oversold, I'll buying more if it drops further. Period.
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  • #1,295
  • Sep 15, 2009 6:08pm Sep 15, 2009 6:08pm
Quoting SkyzerFX
I don't even care about Technical BS anymore.. I just bought it

when I see correlation is out of whack. My Idea is, if I see that

EU/GU is in absurd mode, not to SELL EU but instead just BUY GU. I just

bought GU, GJ

Earlier, and no Stop LOSS.. I refuse to set SL.. I never used them..

I just average down.. Nothing goes 1 direction for long it always reverses..

Every Trade is a winning one, just a matter of time. And no one can time

Forex, Not indies, nor humans.. Every time I take a trade based on idies

it goes wrong direction.....
Yep. That is the way to trade successfully. You just need to have deep pockets.
  • #1,296
  • Sep 15, 2009 7:05pm Sep 15, 2009 7:05pm
Quoting SkyzerFX
I don't even care about Technical BS anymore.. I just bought it

when I see correlation is out of whack. My Idea is, if I see that

EU/GU is in absurd mode, not to SELL EU but instead just BUY GU. I just

bought GU, GJ

Earlier, and no Stop LOSS.. I refuse to set SL.. I never used them..

I just average down.. Nothing goes 1 direction for long it always reverses..

Every Trade is a winning one, just a matter of time. And no one can time

Forex, Not indies, nor humans.. Every time I take a trade based on idies

it goes wrong direction.....
SkyzerFX,

Do you not sell the EU to avoid additional risk? The reason I ask is that the EU could be up and GU down, so you would sell the EU and buy the GU. The GU could stay in a sideways motion and the EU could drop big and bring the pairs trade into profit so you could close out the position. If you only buy the GU you would still be in the trade. However, I realize that if you short and buy and they keep going in the wrong direction you have a major drawdown. I'm just trying to get a feel for your method of risk management.

Thanks for the help
rptrader
  • #1,297
  • Sep 15, 2009 9:23pm Sep 15, 2009 9:23pm
Hi guys,

I'm back from Disney World vacation, somewhat ruined by horrible trading of negative correlated pairs while there.

I only checked charts once a day while I was on vacation, and to my chagrin every single day EUR/USD went up and USD/CHF went down. Finally I exited at a huge loss of 25%. And while I'm still ahead by trading this method, because of the many months of profitability using correlated pairs, this was a very expensive lesson to learn.

So I've put a disclaimer on the front page, in red, stating to never trade this method using negative correlated pairs.

I hope you are all doing well. I'm back to trading this with the usual pairs now, not with negatives any longer!
  • #1,298
  • Sep 15, 2009 9:42pm Sep 15, 2009 9:42pm
I'll leave you be... good luck
  • #1,299
  • Sep 15, 2009 11:26pm Sep 15, 2009 11:26pm
Quoting Dreamliner
Hi guys,

I'm back from Disney World vacation, somewhat ruined by horrible trading of negative correlated pairs while there.

I only checked charts once a day while I was on vacation, and to my chagrin every single day EUR/USD went up and USD/CHF went down. Finally I exited at a huge loss of 25%. And while I'm still ahead by trading this method, because of the many months of profitability using correlated pairs, this was a very expensive lesson to learn.

So I've put a disclaimer on the front page, in red, stating to never trade this method...
What about this strategy? Have you ever tried it?
  • #1,300
  • Sep 15, 2009 11:36pm Sep 15, 2009 11:36pm
Quoting chamane
What about this strategy? Have you ever tried it?
Yes, but that is simply counter-trend trading, at least from what I understand of it. He counts a "deviation" when EUR/GBP goes up (or down) a certain number of pips, and then trades the other way, stating that the "deviation" will return to normal. I don't like it myself, but to each his own.
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