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Hedge and Correlation Strategy

  • #1,801
  • Jan 29, 2011 12:26am Jan 29, 2011 12:26am
Quoting scali71
Post #1669 This is a neg corr pair and one was short and one was long
You are correct that they are negatively correlated pairs and he/she was warned a few times by dreamliner re. it was too risky to use this strategy with negatively correlated pairs. When you buy and sell negatively correlated pairs (buy EURUSD and sell USDCHF), basically you are doubling your bet in the same direction and this is not hedging.
  • #1,802
  • Jan 29, 2011 12:27am Jan 29, 2011 12:27am
Sure, I totally understand what you are saying and not upset at you at all. I have just been down that negatively correlated road before and gotten very burned, lost lots of pips, and believe it is a dangerous road with a cliff at the end.

But this method of stoch trading is different than what I was doing, somewhat, so it may have some different results. That's why I say, let's just test it. Why don't you test all negatively correlated pairs this coming Monday? Demo of course .

It's all good. We're good.

Quoting scali71
Dreamliner, not trying to get in a pissing contest here. Just trying to wrap my hands around it and the pair you said to compare is a negative daily pair. I am just trying to understand and make money like everyone else
  • #1,803
  • Jan 29, 2011 12:28am Jan 29, 2011 12:28am
The directions said to scroll to daily chart. EUR/USD and EUR/CAD on daily is negative. On hourly chart it is positive. So are we supposed to use daily or houlry at http://www.mataf.net/en/tools/01-01-correlation
  • #1,804
  • Jan 29, 2011 12:32am Jan 29, 2011 12:32am
Quoting scali71
The directions said to scroll to daily chart. EUR/USD and EUR/CAD on daily is negative. On hourly chart it is positive. So are we supposed to use daily or houlry at http://www.mataf.net/en/tools/01-01-correlation
On the hourly, I get 74.9 and on the daily I get 78.4.
Attached Image (click to enlarge)
Click to Enlarge Name: Correlation.png Size: 194 KB
  • #1,805
  • Jan 29, 2011 12:32am Jan 29, 2011 12:32am
Obviously its to late to be reading charts (1230 am) here I just looked again and saw positive for them on the daily chart. Ok makes sense now.
  • #1,806
  • Jan 29, 2011 12:35am Jan 29, 2011 12:35am
Is there a way to make an alert on the stochastic difference pairs indicator 1.5 showing when one or both positive correlated pairs reach 95%?

Or an alert on the Tradable correlations stochdiff(2) for when one or both goes positive 95%?

Not sure if time frames matter? But if they do, I want to watch the 5m or 15m.

This is something that came to my mind a few days ago.... and I want to test it on many pairs possible.

Thanks.
  • #1,807
  • Jan 29, 2011 12:56am Jan 29, 2011 12:56am
Everyone have a wonderful day; I'm flying from London to NY to Cleveland today, check back in later tonight from Cleveland Lord willing.
  • #1,808
  • Jan 29, 2011 5:49am Jan 29, 2011 5:49am
positively correlated pair like to swim and drift together. however if one drifts too far north and one too south then we just reap the benifit of betting on them coming back together... that is how i guess it works

DL have a safe flight...from an aircraft engineer
  • #1,809
  • Jan 29, 2011 7:14am Jan 29, 2011 7:14am
Dreamliner ,
Thank you for starting this very useful-fantastic thread , and your continuing support . I guess this is a successful trading system to do in the long run ? As it has been a while since the thread started on date March 30 2009 and it still seems very active . Have a nice weekend everyone.
  • #1,810
  • Jan 29, 2011 7:22am Jan 29, 2011 7:22am
Quoting Dreamliner
I am doing that. When I edit the text on the top indicator the text on the bottom goes away. So then I edit the text on the bottom indicator and the top text goes away. I can switch back and forth like this all day long and the text keeps going away

OK I think I have it figured out now, it works somehow
You need one tick of data for the program to find the window to place the text in. You will have to wait until the market opens to use multiple instances and see all the text.
  • #1,811
  • Jan 29, 2011 7:38am Jan 29, 2011 7:38am
Quoting smjones
You need one tick of data for the program to find the window to place the text in. You will have to wait until the market opens to use multiple instances and see all the text.
The attached simulates ticks when the market is closed or the platform is disconnected from the net.

Attached File(s)
File Type: zip mt4_ticker.zip   16 KB | 720 downloads
  • #1,812
  • Jan 29, 2011 8:31am Jan 29, 2011 8:31am
scot,

one request. the corelation indi displays same set 2 times. it shows EURCHF|EURUSD and also EURUSD|EURCHF. in fact it is one set only.

if you can show it only once, it saves realestate and also it will be easy to read the table

thanks in advance
  • #1,813
  • Jan 29, 2011 8:38am Jan 29, 2011 8:38am
Quoting roundrock
scot,

one request. the corelation indi displays same set 2 times. it shows EURCHF|EURUSD and also EURUSD|EURCHF. in fact it is one set only.

if you can show it only once, it saves realestate and also it will be easy to read the table

thanks in advance
I already fixed this with 1.4 version already posted.
  • #1,814
  • Edited 12:52pm Jan 29, 2011 8:40am | Edited 12:52pm
I found a possible bug in the global variable sets that I have fixed in this version 1.6b

BTW:

If anyone wants it, here is my version of Tradeable Correlations with the Stochastics added.
You can set the time frame of the sto independent of the chart that the table is running on.
You can set it to only show pairs that meet both the correlation criteria and the Stochastic criteria, using the input ShowOnlyCandS. Set to true it shows only those pair combos that meet both criteria
If the difference is positive, then the first currency is on top.
If the difference is negative then the second currency is on top.
Attached Image (click to enlarge)
Click to Enlarge Name: correlations by columns.gif Size: 38 KB
Attached File(s)
File Type: mq4 Stochastic different pairs 1.6b.mq4   13 KB | 1,783 downloads
File Type: mq4 Tradable Correlations 1.5.mq4   11 KB | 1,831 downloads
  • #1,815
  • Jan 29, 2011 9:09am Jan 29, 2011 9:09am
Quoting smjones
I found a possible bug in the global variable sets that I have fixed in this version 1.6b

BTW:

If anyone wants it, here is my version of Tradeable Correlations with the Stochastics added.
You can set the time frame of the sto independent of the chart that the table is running on.
If the difference is positive, then the first currency is on top.
If the difference is negative then the second currency is on top.
I want to say THANKS a lot to Dreamliner (the creator of the system), Scott (the creator of indicators) and Spud (without him and his idea of Mimic Price Stochastic 100, 1, 1 , this thread will not have been rebirth).

About Negative Correlated Pairs, I think it worth to be tested. How Stochastic reacts when Diff > 80% : did they converge quicker with positive correlated pairs or with negative correlated pairs? A backtest would be easy..... I will do it later.....
  • #1,816
  • Jan 29, 2011 9:35am Jan 29, 2011 9:35am
Looks promising... I should give you a try...
Markets can remain irrational longer than you can remain solvent.
  • #1,817
  • Jan 29, 2011 10:59am Jan 29, 2011 10:59am
Really like the concept of this strategy it's amazing how it was dormant for so long.

Have given a 5 star rating and will be testing next week.
  • #1,818
  • Jan 29, 2011 11:47am Jan 29, 2011 11:47am
When Astral pm'd me to tell me about this thread, he said that he was not asking for anything. Hehe. I bet anything you like that he was thinking, "No way can Steve resist this one." I have adapted smjones' and roundrock's indi/ea code to create a multi-pair trader.

I like to keep ea's separate from the developing manual trading strategy, so I have opened a thread specifically for the robot - read about it and download it from
http://www.forexfactory.com/showthre...97#post4355097

I ask members to refrain from cluttering up Dreamliner's thread with discussion about the EA.

roundrock and Scott, I have simply used your code in the new robot, so I would appreciate it if you could check the details and sing out if I have mis-understood anything.

  • #1,819
  • Jan 29, 2011 1:09pm Jan 29, 2011 1:09pm
Rating ***** Five Stars
  • #1,820
  • Jan 29, 2011 1:14pm Jan 29, 2011 1:14pm
If you downloaded the TradeableCorrelation indicator, before the time of this post, please go to

http://www.forexfactory.com/showpost...postcount=1814

and download it again, because I found a small bug in the ArrayResizing that would have prevented new data from being printed. I have since fixed it. and put the corrected indicator at that post above
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