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Hedge and Correlation Strategy

  • #1,361
  • Sep 20, 2009 12:00pm Sep 20, 2009 12:00pm
It should work but it is not my work.
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  • #1,362
  • Sep 20, 2009 7:18pm Sep 20, 2009 7:18pm
try trading crude during crude inventories )) so much fun... so how come i dont trow money away? maybe cause i dont use retarded BANDS. there are many more professional ways to trade. So even 1 minute will look slow to you...
  • #1,363
  • Sep 21, 2009 2:10am Sep 21, 2009 2:10am
i have a demo trade of eur/jpy vs usd/jpy most highly correlated pair i can find.. and on my 30 minute chart they just crossed! what are my results:

- $125 vs + $94.. now i thought the rule was to wait till the gap closes and they cross. this is still negative $31.. if i zoom out to the 1 hour chart now it looks like there is still a gap.. but thats breaking the original rules of the 30 minute time frame. and what if it crossed on the 1 hour move to the 4 hour?

after seeing this kinda lowers my faith on this working.. what do you think?
  • #1,364
  • Sep 21, 2009 2:23am Sep 21, 2009 2:23am
Quoting renski911
i have a demo trade of eur/jpy vs usd/jpy most highly correlated pair i can find.. and on my 30 minute chart they just crossed! what are my results:

- $125 vs + $94.. now i thought the rule was to wait till the gap closes and they cross. this is still negative $31.. if i zoom out to the 1 hour chart now it looks like there is still a gap.. but thats breaking the original rules of the 30 minute time frame. and what if it crossed on the 1 hour move to the 4 hour?

after seeing this kinda lowers my faith on this working.. what do you think?
The most highly correlated pair is EURUSD/USDCHF. Just because there is a gap and they cross does not mean you will make a profit. Overlay trading is a total mis-conception, they may appear to be above/below but they are NOT.
  • #1,365
  • Sep 21, 2009 2:50am Sep 21, 2009 2:50am
Quoting renski911
i have a demo trade of eur/jpy vs usd/jpy most highly correlated pair i can find.. and on my 30 minute chart they just crossed! what are my results:

- $125 vs + $94.. now i thought the rule was to wait till the gap closes and they cross. this is still negative $31.. if i zoom out to the 1 hour chart now it looks like there is still a gap.. but thats breaking the original rules of the 30 minute time frame. and what if it crossed on the 1 hour move to the 4 hour?

after seeing this kinda lowers my faith on this working.. what do you think?
I have the same problem with usd/jpy / eur/jpy - they crossed and there's still -13 pips loss. I'm searching for the answer to this question from the beginning of trading this strategy - and haven't found it yet.
  • #1,366
  • Sep 21, 2009 5:35am Sep 21, 2009 5:35am
I think the problem you guys are having is very easy to solve.

Take a look at the Chart i will try to explain what i think is happening with your positions.

Lets say you took a Short on EUR/JPY at 134.30 (Red Dot in the chart) and at the same time a long on EUR/CHF on 1.5135 (Green Dot in the chart).

So now the EUR/JPY is on 135.00 you have a loss of - 70 Pips.
The EUR/CHF is on 1.5175 you have a profit of + 40 Pips.

So now imagine the EUR/CHF would go up to 1.5210 and at the same time the EUR/JPY stays on 135.00, so the both charts would cross/meet.

In this situation it would look that way:
EUR/JPY - 70 Pips.
EUR/CHF +75 Pips.

So you only have a plus of +5 Pip!

http://img15.imageshack.us/img15/7884/bild26l.jpg

Now another scenario can occur, lets say the EUR/JPY goes up to 136.00 so you have a minus of 170 Pips and at the same time the EUR/CHF goes to 1.5210 well the both charts would still meet. Because of the overlayed chart !!

EUR/JPY - 170 Pips
EUR/CHF + 75 Pips

You would have a loss of -95 Pips its all a matter of volatility of the currencies your working with and of the charts your overlaying !!! Look at the left bar with the values just look at it and then look at the right value bar and imagine the markets would move higher and higher and finally meet you will understand it without my explanation!


Please take care of this because it really can cost you a huge loss.

I'm really wondering why nobody mentioned this point before me please be careful.
consistency wins
  • #1,367
  • Edited 12:47pm Sep 21, 2009 11:46am | Edited 12:47pm
ok so what are we doing then?? are we waiting for them to cross and go BEYOND the cross till it profits? um... ya this was never mentioned how are you doing so well dreamliner. for me its a struggle to profit on any of them and for the most part if i did the exact opposite of trying to trade the gap i would be profit nearly every time off the start of my trades.. since when there gapping the gap seems to widen even more everytime weird.

and is there a way you can set it so the chart has the same pips scale??
  • #1,368
  • Edited 2:10pm Sep 21, 2009 12:52pm | Edited 2:10pm
Dont you need some pip to range formula
like pair one -daily range x pip value =
2nd pair- daily range x pip value=
divide for % different and add that to the slower moving pair

or would you use ATR or other


Quoting iTrader
I think the problem you guys are having is very easy to solve.

Take a look at the Chart i will try to explain what i think is happening with your positions.

Lets say you took a Short on EUR/JPY at 134.30 (Red Dot in the chart) and at the same time a long on EUR/CHF on 1.5135 (Green Dot in the chart).

So now the EUR/JPY is on 135.00 you have a loss of - 70 Pips.
The EUR/CHF is on 1.5175 you have a profit of + 40 Pips.

So now imagine the EUR/CHF would go up to 1.5210 and at the same time the EUR/JPY stays on 135.00, so the...
  • #1,369
  • Sep 22, 2009 2:10am Sep 22, 2009 2:10am
Stop trading it, and get a into trend following methods. With this method you risk too much, for too little. One loss will wipe out hundreds of profitable trades. Pairs trading should be done only by a very experienced trader, since you are taking on DOUBLE RISK without stops. With trend following at least you have a predetermined risk set, no matter what method of entry you choose. There is no way around it, trading demands you learn to set risks and take losses when you are wrong. After all, predetermined loss is a "business expense", but loss above predetermined amount is foolishness.
  • #1,370
  • Sep 22, 2009 3:14am Sep 22, 2009 3:14am
Quoting Petronix
Stop trading it, and get a into trend following methods. With this method you risk too much, for too little. One loss will wipe out hundreds of profitable trades. Pairs trading should be done only by a very experienced trader, since you are taking on DOUBLE RISK without stops. With trend following at least you have a predetermined risk set, no matter what method of entry you choose. There is no way around it, trading demands you learn to set risks and take losses when you are wrong. After all, predetermined loss is a "business expense", but loss...
For once, someone finally speaks the truth.
  • #1,371
  • Sep 22, 2009 5:11pm Sep 22, 2009 5:11pm
Obviously this type of strategy isn't for everyone as it carries higher risks than more orthodox ones. But proper money management can be applied to remove the large draw down risks. I don't think this strategy should be used as your core trading plan but rather as a supplemental one traded with very small lots and profit expectations.
  • #1,372
  • Sep 23, 2009 10:01am Sep 23, 2009 10:01am
  •  tmal
  • | Joined Oct 2007 | Status: Arrogant FX Bastards Club Member | 24 Posts
This strategy teach me how to hedge (positive positons) & cover (negative positions).
  • #1,373
  • Sep 24, 2009 2:22am Sep 24, 2009 2:22am
Definitely . But then it begs the question : "Is in it an exercise in futility?". After all we are learning to trade markets to make a living. And strategies that can provide better results are preferred.

Quoting weekapaugh
Obviously this type of strategy isn't for everyone as it carries higher risks than more orthodox ones. But proper money management can be applied to remove the large draw down risks. I don't think this strategy should be used as your core trading plan but rather as a supplemental one traded with very small lots and profit expectations.
"tmal" This strategy teach me how to hedge (positive positons) & cover (negative positions). "

I sometimes do a directional hedge during breakout. especially in the market that has a lot of false breakouts. In that sense you are covered against an opposite move. Say, I 'm buying gold at resistance breakout, at the same time i sell Aud. Gold outperforms AUD during breakouts always. But if a breakout a fake, i have AUD to protect against larger losses with GLD. Thats that in nutshell. Correlated markets do provide that kind of protection. Just use it in a different way.
  • #1,374
  • Sep 24, 2009 3:05am Sep 24, 2009 3:05am
I think most of our losses are due to jumping too fast into a trade. After two months of trading this strategy I'm much better in noticing profitable setups - I'm able to differentiate between developing gap and gap already developed. It's like there are fresh gaps, mature gaps, and old ones.

Also after some time you learn how big/wide gaps can become in certain pairs.

You really need some practice in trading this system before trading live.
  • #1,375
  • Sep 24, 2009 7:52am Sep 24, 2009 7:52am
Perhaps it might be a good idea to choose two pairs with
positive swap as we can only predict when the two pairs will converge
again...

It might be days or weeks...

IN the meantime we will be collecting swaps...

any suggestions...
  • #1,376
  • Sep 24, 2009 9:58am Sep 24, 2009 9:58am
Quoting T.E.Lawrence
I think most of our losses are due to jumping too fast into a trade. After two months of trading this strategy I'm much better in noticing profitable setups - I'm able to differentiate between developing gap and gap already developed. It's like there are fresh gaps, mature gaps, and old ones.

Also after some time you learn how big/wide gaps can become in certain pairs.

You really need some practice in trading this system before trading live.
wise words - its all about this.

i had a +352 pips this week, not only by using this overlay method, but its for me like an indicator, it helps me to see where a trend may be over or turn around. and as i said before, this method is very effective if you have other indicators that help you measure the trend strength ... and of course u need a good experience for not entering too early.

the thing why i like this idea of trading, is because its not a strict system where u have a strict stoploss etc etc. it lets YOU, decide where to enter, where to add and where to exit a position.

have a good week/end
consistency wins
  • #1,377
  • Sep 24, 2009 6:46pm Sep 24, 2009 6:46pm
gbp/jpy crossed and never made money for me held it since sept 15. its showing its crossing again right now and really its down over 350 pips. i dont trust this method at all. done my testing and im out.
  • #1,378
  • Sep 27, 2009 4:44pm Sep 27, 2009 4:44pm
Is anyone still using this method having significant success with it???
  • #1,379
  • Sep 28, 2009 12:47am Sep 28, 2009 12:47am
Quoting Gothamcity
Is anyone still using this method having significant success with it???
Yes - me. Losses here, as everywhere else, don't mean that this strategy doesn't work. It works, but as with every other strategy, to make consistent profits you need to master it, at least to some level. It's hard because forex trading is hard - it's not a science, it's an art.

And I think this is one of the best strategies out there.
  • #1,380
  • Sep 28, 2009 9:35pm Sep 28, 2009 9:35pm
Ive been following this method for about a month and this is like a garbage system. if you just found this thread, never waste your time trading this garbage
When I buy it, it moves down. When I sell it, it moves up.
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