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Synthetic hedges, cointegration, mean reversion and similar stuff

  • #161
  • Nov 23, 2010 1:06pm Nov 23, 2010 1:06pm
Quoting gspe
I just want to say tanks to 7bit for his works, it opens a new door to forex trading for me.
Actually i'm studying R since 2 weeks ago, when i discovered this thread and it's fantastic

I just want to contribute suggesting a couple of reading that i've found interesting
http://quanttrader.info/public/testForCoint.html
and this books
http://www.amazon.com/dp/0470284889
http://www.amazon.com/gp/product/0387759662

gspe...

You'll go nowhere with all that math crap, just watch the screen and get feel for what happens
The breaking of a wave cannot explain the whole sea.
  • #162
  • Nov 23, 2010 1:16pm Nov 23, 2010 1:16pm
Quoting Craig
You'll go nowhere with all that math crap
LOL.
  • #163
  • Nov 23, 2010 2:16pm Nov 23, 2010 2:16pm
Quoting 7bit
It will multiply USD/XXX pairs with the value of their quoted price (the current price of one USD expressed in XXX)
I see. By the way, I`m using another method: Price * Point Value.
  • #164
  • Nov 24, 2010 7:15pm Nov 24, 2010 7:15pm
here's my 3 days result trading trendomat.
Attached Image (click to enlarge)
Click to Enlarge Name: result.JPG Size: 30 KB
  • #165
  • Nov 24, 2010 9:50pm Nov 24, 2010 9:50pm
Quoting luiboy
here's my 3 days result trading trendomat.
can you share your strategy here.
  • #166
  • Nov 25, 2010 3:35am Nov 25, 2010 3:35am
Dear Bernd, could you help with R, the problem is that in the folder with the R does not have a folder "bin", which should be based on "Rterm.exe", I read the thread through the Google translator, through him, then there is little clear
  • #167
  • Nov 25, 2010 6:23am Nov 25, 2010 6:23am
Quoting Neksus
Dear Bernd, could you help with R, the problem is that in the folder with the R does not have a folder "bin",
It must be there somewhere. Look where the shortcut to start he GUI in your start menu points to. You will then find Rterm.exe in the same folder.
  • #168
  • Nov 25, 2010 9:40am Nov 25, 2010 9:40am
Quoting Neksus
Dear Bernd, could you help with R, the problem is that in the folder with the R does not have a folder "bin", which should be based on "Rterm.exe", I read the thread through the Google translator, through him, then there is little clear
there could be a subfolder called 'i386'. in this you'll find RTerm.exe
  • #169
  • Nov 25, 2010 10:05am Nov 25, 2010 10:05am
Quoting luiboy
here's my 3 days result trading trendomat.
Are you using the original code without modifications on trend mode?

As for now, I'm using the orignal code on range mode and doing decently.
  • #170
  • Edited 1:10pm Nov 25, 2010 12:47pm | Edited 1:10pm
The two red lines ("back" and "now") mark the period during which the regression is done and anything after it is how it would have continued with the same ratios. I have moved the windows over each other so that the lines are congruent.

Attached Image (click to enlarge)
Click to Enlarge Name: 2010-11-25-193321_1023x591_scrot.png Size: 133 KB


On the higher timeframes H4 or D1 it seems the forex market as a whole is still dancing to exaxtly the same tunes as it did in 2009. This period started exactly at the bottom of this big drop in early 2009 and seems to continue until now, these lottery numbers from 2009 would have won 2010 too. No matter where I fit the model in 2009 it would have given me a profitable 2010.

The flash crash did not change the trend at all, it made only a little spike. And nothing, absolutely nothing of all the things that our political clowns worldwide have said and done seemed to have had even the slightest impact on where and how fast the money has been moving throughout 2010! Not the slightest impact! This is what I see in these charts.

Only recently (november) it seems to start behaving a little strange on the lower timeframes, but this could also only be because of the EURUSD reversal and normalize again.
  • #171
  • Nov 25, 2010 1:24pm Nov 25, 2010 1:24pm
It turned out that I'm not the downloaded file with R, now all in place and working. Tell me, I'm not a programmer, I looked into the code trendomat.mq4 and as I understand, he does not open the position, then a currency basket should be opened by hand?
and if "YES", how to open,: if the graph goes up, the XXX-USD Buy and USD-XXX sell?, or vice versa?
Sorry for the English writing by Google Translator
  • #172
  • Nov 25, 2010 3:24pm Nov 25, 2010 3:24pm
Quoting Neksus
It turned out that I'm not the downloaded file with R, now all in place and working. Tell me, I'm not a programmer, I looked into the code trendomat.mq4 and as I understand, he does not open the position, then a currency basket should be opened by hand?
and if "YES", how to open,: if the graph goes up, the XXX-USD Buy and USD-XXX sell?, or vice versa?
Sorry for the English writing by Google Translator
It does not contain any code for trading. It is some kind of indicator. the only reason I made it as an EA is to be able to easily run it on past prices in the backtester and because indicators are not allowed to call long-running functions, this would freeze MetaTrader.

There is code that I use for my trading with oanda. If you click (select and move) one of the buttons in the upper right then it will create a ticket file in a folder called "oanda_tickets" that will contain the amount to be sold or bought at oanda. It will also remember the current position (and print it in the brackets) and if you move the buy button a second time it will create tickets about the *difference* to adjust your positions. Here on my PC these tickets are picked up by my oanda API application to trade them at oanda.

You could hook your own trading code into the createOandaTicket() function or make a separate EA that will pick up the tickets and trades them.

if you want to buy the blue line then + is buy, - is sell. If you want to sell it then vice versa.

If you want to add your own trading functions: common_functions.mqh contains a function reducePosition() that can scale out of a trade the requested amount and return the amount of lots that need to be opened into the other direction:

untested:
Inserted Code
// example how to make sure you are long (or short) x lots.
void setPositionSize(string symbol, double lots){
   // each symbol its own magic
   int magic = makeMagicNumber(WindowExpertName() + symbol);
   double open_already = getLotsOnTableSigned(magic);
   double difference = lots - open_already;
   if (difference > 0){
      addLong(symbol, difference);
   }
   if (difference < 0){
      addShort(symbol, -difference);
   }
}

// example code to buy (or reduce a sell or both)
void addLong(string symbol, double buy_lots){
   // each symbol its own magic
   int magic = makeMagicNumber(WindowExpertName() + symbol);
   double remaining_lots = reducePosition(OP_SELL, buy_lots, magic);
   if (remaining_lots > 0){
      orderSendReliable(OP_BUY, remaining_lots, ...);
   }
}

void addShort(string symbol, double sell_lots){
   ...
   ... // as above, only the other way round
   ...
}
  • #173
  • Nov 25, 2010 4:12pm Nov 25, 2010 4:12pm
Quoting reachjj
can you share your strategy here.
No established strategy yet. I just enter the market when the graph is below the lowest line.


Quoting ultfrisbee
Are you using the original code without modifications on trend mode?

As for now, I'm using the orignal code on range mode and doing decently.
Yes. I'm using trendomat.
  • #174
  • Nov 28, 2010 12:23am Nov 28, 2010 12:23am
Quoting 7bit
Attachment
Attachment
Attachment
Hi 7 bit

I tried to backtest the trendomat.mq4, and it gives me these errors, could you please advise me what is the issue. Thanks

2010.11.28 14:03:27 2009.01.02 06:01 trendomat GBPUSD,M5: new size -14 for ArrayResize function is incorrect
2010.11.28 14:03:19 trendomat inputs: back_bars=2000; base_units=1000;
  • #175
  • Nov 28, 2010 11:15am Nov 28, 2010 11:15am
Quoting Fx12888
Hi 7 bit

I tried to backtest the trendomat.mq4, and it gives me these errors, could you please advise me what is the issue. Thanks

2010.11.28 14:03:27 2009.01.02 06:01 trendomat GBPUSD,M5: new size -14 for ArrayResize function is incorrect
2010.11.28 14:03:19 trendomat inputs: back_bars=2000; base_units=1000;

Hi 7 bit

Please ignore the reported issue , I found out that the historic data of one of the synthetic pair is corrupted. I re-downloaded the data and had it fixed.
Thank you of your contribution
  • #176
  • Nov 29, 2010 2:05pm Nov 29, 2010 2:05pm
Hi 7bit,

Great thread. Your knowledge of this stuff is amazing. Please, keep posting, maybe I'll learn something about this interesting field.
  • #177
  • Nov 29, 2010 6:44pm Nov 29, 2010 6:44pm
7bit do you think you could make an ea that traded like this, opening 2.63 lots of this, 0.71 of that and so on and use you idea of soft stop loss- scaling down of the pair that's messing with the trend/range and scaling up the others ?
  • #178
  • Nov 30, 2010 3:26am Nov 30, 2010 3:26am
Thanks to Bernd for sharing everything that he's done here. This is a concept I'd also been looking into early this year, but I had given up on it until I came across Old_Dog's thread and subsequently this one.

I would encourage anyone interested in an EA to take some time to figure out how you would like to trade this basket before investing in an EA. I've been trading it manually for a bit, and while it hasn't gone wrong yet, you do need to be prepared for large swings. Furthermore, if you haven't noticed, it appears that Bernd trades using Oanda, so I doubt he'd have a lot of interest in trading this with a metatrader broker. That said, creating an EA should be possible, but it will require additional interfaces to R (possible just read the basket via flatfile?). Also, this won't be an EA you can backtest in MT4 as the backtester can't trade multiple currencies. If someone wants to code this for MT5, then the backtester should be handy. Otherwise, this needs to be traded on a demo account for some time to prove it out.
  • #179
  • Edited 5:59am Nov 30, 2010 4:37am | Edited 5:59am
Quoting ChaserL
That said, creating an EA should be possible, but it will require additional interfaces to R (possible just read the basket via flatfile?).
No! There is no need to do anything with flatfiles.

For example:
RGetDouble() or its shorthand Rgd() get a double value from an R vaiable or expression
RGetVector() or its shorthand Rgv() get an array of double from an R variable or expression.
Everything that is needed to move data between mt4 and R is already implemented in the mt4R API as simple direct function calls without any messing around with flatfiles. etc. I suggest looking into the mt4R.mqh file and reading the extensive documentation about the complete interface there or alternatively http://7bit.99k.org/mt4_r_8mqh.html the same documentation as online browsable HTML.

Regarding the EA: At the end of the onOpen() function after everything has been completed (the regression and the plotting of the curves there is everything that is needed already in mql4 variables.

coef[] is the array containing the weights (they just need to be transformed into dollar based MT4 lotsizes)

pred[] is the array that contains the plotted curve (the spread). pred[0] is the value of the current bar, this can be used for the trading decisions. The variabld stddev contains the standard deviation of the spead.

You could just hook your own trading function into the end of the onOpen() or the end of the onTick() function. Make a function trade() that contains all trading logic and call it at the end of onOpen() or at the end of onTick().
  • #180
  • Nov 30, 2010 11:17am Nov 30, 2010 11:17am
I wish you could release it soon. Thanks.


Quoting 7bit
...

The other method uses diff() to take the first difference and runs the regression on that. I will upload this version of arbomat soon. This will not enforce an absolute trend or stationarity anymore and instead tries to make the curve as smooth as possible by trying to "hedge away" all the short-term moves. The result will only *sometimes* be stationary but is much more meaningful, the coefficients don't fluctuate so much anymore, they drift only very slowly and stay relatively constant.

Fitting the absolute price forces the curve to...
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