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Hedge and Correlation Strategy

  • #2,181
  • Feb 3, 2011 10:20am Feb 3, 2011 10:20am
We're slamming out the pips today aren't we? You and I together got 8 so far! I'm giving all mine to charity, how about you?

Quoting Caillou
Buy EUR/CHF, Sell GBP/CHF, so Buy EUR/GBP, entry at 80% M5, 10 min later exit at cross M1: +6 pips.....

If we take the exit at the lower TF we could have an additional filter: if Diff Stoch is not enough on lower TF, we donīt enter.

Letīs see how it goes.......
  • #2,182
  • Feb 3, 2011 10:25am Feb 3, 2011 10:25am
Quoting Dreamliner
We're slamming out the pips today aren't we? You and I together got 8 so far! I'm giving all mine to charity, how about you?
Sure.....

How about trading with 150 lots ?....

This would be really exciting........
  • #2,183
  • Feb 3, 2011 10:31am Feb 3, 2011 10:31am
Wrong thread. That's in the "I have Huge Kahoonas, and You Don't" thread

Quoting Caillou
Sure.....

How about trading with 150 lots ?....

This would be really exciting........
  • #2,184
  • Feb 3, 2011 10:37am Feb 3, 2011 10:37am
Quoting Dreamliner
Wrong thread. That's in the "I have Huge Kahoonas, and You Don't" thread

  • #2,185
  • Edited 11:24am Feb 3, 2011 10:56am | Edited 11:24am
Well the 30 minute time frame with 80 entry and 50 exit bit me on the butt overnight and this morning. Yesterday I had made 116 pips and between 4 new trades entered early this morning, I ended up losing 107 pips. Throw in the swap from yesterdays trades that went past the close time and it added up to another 7 pips of loss. So I am 2 pips positive lol.

The problem seems to be when the pairs get out of sequence with each other after the trade happens. For example lets say you initiate a quad and they are in $15.00 of DD because of spreads at the 80% entry. They move in your favor but then move back to the entry percentage of 80 but now they are not out just the spread they are now $40.00 in DD (these are just example numbers). This seems to occur when one pair is moving more pips than the other one in a dramatic fashion. Now as they move to the 50% line they don't always get to profit and you close for a loss. It is like a ratcheting effect, they are not synced up so to speak. I had two trades today (one triple and one quad) that went into deep DD as they bounced around the 70-80 line. Then as the one pair continued down so did the other one but since the one pair was close to or at the 0 stoch and couldn't move any lower, the difference narrowed to 50% and the trade was closed for a loss.

I know this is just part of the risk... but thinking out loud, I am wondering if we might want to look for that condition and move our exit point to BE or 20% or 0%?!? I am going to go back and check to see if the two pairs would have gotten into profit had I endured the DD. There are many times that the DD comes but the pairs stay fairly even in number of pips of movement. It is when they get out of sync that the DD gets bigger and the move to 50% won't net a profit. The question is how long before that difference is possibly made up.

Of course, the reverse argument can be made that you get out and take your loss. Only time will tell if the wins will outweigh the losses. Not sure if I have an answer but I thought I would throw it out there.

UPDATE:
I went back and as best I could, I tried to see if one of the losses would have ended in profit... I only did it for one of the trades as it is a bit time consuming and hard to be precise anyway at 20% it would have still closed with about the same loss. It is close to 0% now and it could have closed at a fairly small loss now but still a loss. Holding past 0 and waiting could be hazardous.

Another thing to possibly consider is when a trade gets out of sync and returns to the 80% entry line could you take another position on the pair that has the smaller pip movement to accommodate the other pairs larger pip move? I need to think that through more as it may just increase your risk, but it deserves more thought.
Over confidence can be a moral hazard.... not to mention a financial one!
  • #2,186
  • Feb 3, 2011 11:20am Feb 3, 2011 11:20am
Quoting Mcforex
Well the 30 minute time frame with 80 entry and 50 exit bit me on the butt overnight and this morning. Yesterday I had made 116 pips and between 4 new trades entered early this morning, I ended up losing 107 pips. Throw in the swap from yesterdays trades that went past the close time and it added up to another 7 pips of loss. So I am 2 pips positive lol.

The problem seems to be when the pairs get out of sequence with each other after the trade happens. For example lets say you initiate a quad and they are in $15.00 of DD because of spreads at...
The same thought occurred to me today. They go out of sync, gap widens, but they do not go back to where they were to be in sync again. I imagine a situation where we go short pair A and long pair B. A remains flat and B drops so we have DD. Then B goes flat and now they are correlated again but the DD is still there.

I may be completely wrong but this is why I still prefer the 5 min because it forces me out quickly. I will review my trades tomorrow and report on the results.

By the way my last trade EURCHF-GBPCHF resulted in a small loss (4 pips)
  • #2,187
  • Feb 3, 2011 11:51am Feb 3, 2011 11:51am
my observation is like this

entry at 80 diff. now the diff goes to 85-90, we are in DD. to cover this DD, diff has to come down twice as much as it went up. that means if it goes to 9- from 80, then when it comes to 60, we are BE. exit at 50 would jst give small , very small profit

so entry is the key. we should enter at the highest diff as possible. thats why i moved to 90 as entry. also exit at 20 instead of 50 gives more pips but keeps you in trade longer and if it goes back to 80, now you need to wait longer...

perfect trade is when you enter at 90 diff and it starts moving in yr direction and diffnever goes up but keeps coming down and hits 20. on M15 you can get entries at 90. just be patient

if u enter at 80 and it goes up, average at 95. you will make money.
  • #2,188
  • Feb 3, 2011 12:14pm Feb 3, 2011 12:14pm
Iīm not sure if is someone considering a lot size (lot ratio between open pairs).. maybe I didnīt noticed it here, thread is going really fast (itīs great).. anyway..

I think, itīs not good to open trade with the same lot size (every pair has a different average daily volatility)... if you trade this pairs with the same lot size it could happend, that the slower pair canīt "meet" the faster one.. pairs with small volatility have no chance against pairs with higher volatility.
For example 1.pair has 50pips daily range and 2.pair has 200pips average daily range, it is clear that first pair could never beat the second one. BUT if first pairs would be 4 times bigger, chance would be 1:1.

And now example:

You have two pairs USD/JPY against GBP/JPY.. itīs possible that USD/JPY can make a bigger movements than GBPY/JPY ? I think not, so when you will open it with the same lot size and they will go in opposite direction there is no chance, because when GBP/JPY will jump 100 pips against you, there is no chance for USD/JPY to run down and win over GBP/JPY.

So, when you open (buy USD/JPY and sell GBP/JPY) and both pairs will go in the same direction (because of correlation) itīs good (you hit the direction of one pair- itīs ok), but there is a problem because GBP/JPY is round 1.6 times faster than USD/JPY. So you have to parlay 1.6x time lot size of USD/JPY.

It means when you trade two (hedged) pairs it suffices reverse actual price and size (USD/JPY is 82.00 and GBP/JPY 159.00).. so you shoul buy 1.59 lot USD/JPY and sell 0.82 lot GBP/JPY etc.

Itīs simple, it is really light math. I hope it is clear how I mean it.

Kruspe
  • #2,189
  • Feb 3, 2011 12:20pm Feb 3, 2011 12:20pm
This is absolutely right; I've discovered this too: entries are everything. The farther a pair is from home the quicker they want to get there. I think if we took every trade at 90 we would have far less trades and probably no losers at all. The difficult part, at least for us 30 minute time-framers, is waiting for a trade. We may not even get one a day at 90. But I'd rather have 1 really good set up than a couple that I have to suffer through draw down to make anything.

My son keeps assuring me, just wait dad, they will come back into correlation and profit. He's young, he can suffer more than I can .

Quoting roundrock
my observation is like this

entry at 80 diff. now the diff goes to 85-90, we are in DD. to cover this DD, diff has to come down twice as much as it went up. that means if it goes to 9- from 80, then when it comes to 60, we are BE. exit at 50 would jst give small , very small profit

so entry is the key. we should enter at the highest diff as possible. thats why i moved to 90 as entry. also exit at 20 instead of 50 gives more pips but keeps you in trade longer and if it goes back to 80, now you need to wait longer...

perfect trade is when you...
  • #2,190
  • Feb 3, 2011 12:24pm Feb 3, 2011 12:24pm
Quoting Ckp
Hi SMJ

Love the indi and hedged pair function. Thanks for that. Since you coded the indi, could you perhaps tell us if the accuracy of the correlation percentage and correlation period is dependent on the quality and quantity of the history data inside your terminal? If i enter M15 and 23040 periods equal to 240 trading days and my history data for m15 only amounts to 5000 periods, how would that affect the output/accuracy of the correlation percentage? Where does the indi collect the price data from?

Thanks again for the great indicator.
Regards
Ckp...
Well that is one way to do it, but a better way would be to set the timeframe to days and select 0 as the periods, that way it would look at every closing daily bar you have in your history.

Or you could change the max history bars in the tools section of mt4. In any event by putting a 0 in the periods field, the program looks at all of the bars
  • #2,191
  • Feb 3, 2011 12:47pm Feb 3, 2011 12:47pm
Quoting roundrock
my observation is like this

entry at 80 diff. now the diff goes to 85-90, we are in DD. to cover this DD, diff has to come down twice as much as it went up. that means if it goes to 9- from 80, then when it comes to 60, we are BE. exit at 50 would jst give small , very small profit

so entry is the key. we should enter at the highest diff as possible. thats why i moved to 90 as entry. also exit at 20 instead of 50 gives more pips but keeps you in trade longer and if it goes back to 80, now you need to wait longer...

perfect trade is when you...
The main problem is that you will never know how much pips represents a 1% movement of Stochastic.

You can enter at 90%, or 95% but if the move is extremely agressive, a 1% could represent lots of pips. If we use Stoch we have to live with that.

My suggestion: if a trade goes into DD, get out quickly, quickly, quickly.....
  • #2,192
  • Feb 3, 2011 12:54pm Feb 3, 2011 12:54pm
Quoting Caillou
The main problem is that you will never know how much pips represents a 1% movement of Stochastic.

You can enter at 90%, or 95% but if the move is extremely agressive, a 1% could represent lots of pips. If we use Stoch we have to live with that.

My suggestion: if a trade goes into DD, get out quickly, quickly, quickly.....
All my losses only in 15 min TF. Whatever earned yesterday,100 pips ++++ i gave up today. But surprisingly not on 5 min TF. Untill yesterday my turnover on 5 min TF was 300 pips, today the a/c shows 327 pips !!

So the 80 & 20 or 90 & 10 seem to work in lesser TF.

From now on i decided to trade with triplets only.
Intraday only.
  • #2,193
  • Feb 3, 2011 1:00pm Feb 3, 2011 1:00pm
So you're sticking with 5 minute triplets?

Quoting navk
All my losses only in 15 min TF. Whatever earned yesterday,100 pips ++++ i gave up today. But surprisingly not on 5 min TF. Untill yesterday my turnover on 5 min TF was 300 pips, today the a/c shows 327 pips !!

So the 80 & 20 or 90 & 10 seem to work in lesser TF.

From now on i decided to trade with triplets only.
  • #2,194
  • Feb 3, 2011 1:03pm Feb 3, 2011 1:03pm
Quoting Dreamliner
So you're sticking with 5 minute triplets?
Triplets on 15 min too. Let us see.
Intraday only.
  • #2,195
  • Feb 3, 2011 1:09pm Feb 3, 2011 1:09pm
I entered eurusd/eurgbp When the stoc diff was + 80 in hourly chart. This pair set has a positive corelation of 61. I took 50 pips in a day. Eurousd moved down but eurgbp did not move up But still 50 pips was achieved. The trade got completed in 12 hrs.

Right now i am on audusd sell and nzdusd buy. The positive corel no is 51. Stoc diff when i entered was 65. in hourly chart. WIll post here once finished.
Intraday only.
  • #2,196
  • Feb 3, 2011 2:19pm Feb 3, 2011 2:19pm
Wow man you're a pipster, a pipmeister! Is your favorite pizza PIParoni?

Anyway, you're doing all this the day before NFP? All my stochs have gone home and gone to bed for the day because of NFP.

Quoting navk
I entered eurusd/eurgbp When the stoc diff was + 80 in hourly chart. This pair set has a positive corelation of 61. I took 50 pips in a day. Eurousd moved down but eurgbp did not move up But still 50 pips was achieved. The trade got completed in 12 hrs.

Right now i am on audusd sell and nzdusd buy. The positive corel no is 51. Stoc diff when i entered was 65. in hourly chart. WIll post here once finished.
  • #2,197
  • Feb 3, 2011 2:33pm Feb 3, 2011 2:33pm
If someone happens to be around right now (3:30 PM EST) can you tell me what USDCHF/USDJPY difference is on the 1 hour timeframe? If you get this after 4:00 PM I won't need it. I just think I have some corrupt data and want to compare.
  • #2,198
  • Feb 3, 2011 2:35pm Feb 3, 2011 2:35pm
Quoting Dreamliner
If someone happens to be around right now (3:30 PM EST) can you tell me what USDCHF/USDJPY difference is on the 1 hour timeframe? If you get this after 4:00 PM I won't need it. I just think I have some corrupt data and want to compare.
I show it right now at 34
Over confidence can be a moral hazard.... not to mention a financial one!
  • #2,199
  • Feb 3, 2011 2:37pm Feb 3, 2011 2:37pm
Quoting Dreamliner
Wow man you're a pipster, a pipmeister! Is your favorite pizza PIParoni?

Anyway, you're doing all this the day before NFP? All my stochs have gone home and gone to bed for the day because of NFP.
I can watch prices going up and down and see that profit targets get filled in. I am ready for a DD but i am sure the target will be achieved. Will report to you tomm8.45 AM .
Intraday only.
  • #2,200
  • Feb 3, 2011 2:39pm Feb 3, 2011 2:39pm
Quoting Dreamliner
If someone happens to be around right now (3:30 PM EST) can you tell me what USDCHF/USDJPY difference is on the 1 hour timeframe? If you get this after 4:00 PM I won't need it. I just think I have some corrupt data and want to compare.
DL..diff right now is 34% on H1 TF...hope that helps
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