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Three Pairs Hedging

  • #101
  • Feb 7, 2011 6:02pm Feb 7, 2011 6:02pm
Quoting tex
Hey DL,

i don't think there's much experience with this method by now. Take a look at SQ's fine backtesting indicator with 3 pairs. There seems to be some potential when one of the 3 pairs drifts away and gets out of sync..

Maybe the ea should monitor the stochastic for each pair, and only then automatically open the necessary trades. Wouldn't that be great as an option? Wish I know how to program!!!!

Pardy
  • #102
  • Feb 7, 2011 6:02pm Feb 7, 2011 6:02pm
Quoting Pardy
Yes, that should be interesting. If the BBS works, by the same logic so should the SSB. And seems to be no reason why they can't then work together, as long as the ea recognises the p/l for each group separately, and not the global p/l for the six trades.

I don't think the effect will be flat with this hedge of a hedge, since the markets don't move in a stratight line but oscillate - when the net goes positive, that profit is booked. So in that sense if there is a lot of oscillations, presumably you will be realising profits on both groups. Even...
You are correct. It will not be flat. You will lose double to transaction costs with no chance to profit. Think about it for a moment. If the lot sizes are the same for either approach and the only advantage this method has is the fact that the same lot size for each pair is not equivalent int terms of deposit currency. then you have just neutralized that advantage. Note that I use the word advantage, because it is not an edge. This is technically only a money management system, because the same trade can be down with the odd currency pair alone. What you suggest simply negates the single currency. Note also that this type of trade setup is not allowed in the US, because it is technically nedging, to use melin's term.
  • #103
  • Feb 7, 2011 6:03pm Feb 7, 2011 6:03pm
Quoting Pardy
Maybe the ea should monitor the stochastic for each pair, and only then automatically open the necessary trades. Wouldn't that be great as an option? Wish I know how to program!!!!

Pardy
The thread starter has presented a profitable system. What gives you reason to make changes?
  • #104
  • Feb 7, 2011 6:24pm Feb 7, 2011 6:24pm
And there is no need to reinvent the wheel...

http://www.forexfactory.com/showthread.php?t=62477
  • #105
  • Feb 7, 2011 6:31pm Feb 7, 2011 6:31pm
Quoting smjones
You are correct. It will not be flat. You will lose double to transaction costs with no chance to profit. Think about it for a moment. If the lot sizes are the same for either approach and the only advantage this method has is the fact that the same lot size for each pair is not equivalent int terms of deposit currency. then you have just neutralized that advantage. Note that I use the word advantage, because it is not an edge. This is technically only a money management system, because the same trade can be down with the odd currency pair alone....
I bow respectfully of course to your considerable knowledge and logic. I was taking a rather simplistic view in the sense that if BBs is profitable over a period of time, so too should the SSB. If at all this way is profitable, then person A could only trade BBS and make some money at some point, and person B could trade just SSB and make some money similarly. Assuming the method works. Now you could trade both yourself if say A represents one account, and B represents another, both belonging to the one person. (All assuming again that the method works profitably in the first place).

Extending that thought then, if A and B represent now not two separate accounts but the two different groups and can be each managed separately within one account ( through use of magic numbers) as if it were two separate accounts for the purposes of realising profit, that should then work. For accounts in the UK, there is of course no problem with hedging.

Example, BBS is opened on say 02/02/11 and achieves its target of $20 on 05/02/11. Next BBS opened on 05/02/11 and achieves target of $20 on 09/02/11. Total gain $40.
SSB is opened on same day 02/02/11 and achieves its target of $20 on 06/02/11. Next SSB opened on 06/02/11 and achieves its target of $20 on 11/02/11. Total gain $40.
Thus aggregate gain = $80.

In between 02/02/11 and 11/02/11 there will be points in time with drawdowns or net flat or some profit of course.

I still don't fully understand it, at the back of my mind is if its too good to be true........... Nice to find out though in the safe environment of a demo account.

Regards
Pardy
  • #106
  • Feb 7, 2011 6:32pm Feb 7, 2011 6:32pm
Quoting tex
Hey DL,

i don't think there's much experience with this method by now. Take a look at SQ's fine backtesting indicator with 3 pairs. There seems to be some potential when one of the 3 pairs drifts away and gets out of sync..
I've noticed the same thing, it will work safely with the 3 Pairs Hedging strategy.

If you drift away from using the 3 Pairs Hedging strategy because you saw an opportunity by trading the negatively correlated pairs in opposite directions, you'd be risking your account as stochastic lines can remain in ob/os zones for a long time.
  • #107
  • Feb 7, 2011 6:34pm Feb 7, 2011 6:34pm
Quoting smjones
You are correct. It will not be flat. You will lose double to transaction costs with no chance to profit. Think about it for a moment. If the lot sizes are the same for either approach and the only advantage this method has is the fact that the same lot size for each pair is not equivalent int terms of deposit currency. then you have just neutralized that advantage. Note that I use the word advantage, because it is not an edge. This is technically only a money management system, because the same trade can be down with the odd currency pair alone....
Correct, I've tried this yesterday with my own basic EA to manage two separate baskets (BBS, SSB) of same pairs each with their own MagicNumber and there is no edge doing this, unless you're the Broker!
  • #108
  • Feb 7, 2011 6:37pm Feb 7, 2011 6:37pm
Quoting Pardy
Maybe the ea should monitor the stochastic for each pair, and only then automatically open the necessary trades. Wouldn't that be great as an option? Wish I know how to program!!!!

Pardy
I like that saying: "Great minds think alike"
  • #109
  • Feb 7, 2011 6:38pm Feb 7, 2011 6:38pm
Quoting tjfxtrader
The thread starter has presented a profitable system. What gives you reason to make changes?
The thread stared 2 days ago. What reason do you have to deem it profitable?
  • #110
  • Feb 7, 2011 6:41pm Feb 7, 2011 6:41pm
Quoting Pardy
I bow respectfully of course to your considerable knowledge and logic. I was taking a rather simplistic view in the sense that if BBs is profitable over a period of time, so too should the SSB. If at all this way is profitable, then person A could only trade BBS and make some money at some point, and person B could trade just SSB and make some money similarly. Assuming the method works. Now you could trade both yourself if say A represents one account, and B represents another, both belonging to the one person. (All assuming again that the method...
I see what you mean. It does not matter much whther it is bbs or ssb. Ok, that is true. Although, this idea of a three stoch might prove useful. however, the single currency directional play is still cheaper, but requires more thought to get the lot size correct.
  • #111
  • Feb 7, 2011 7:03pm Feb 7, 2011 7:03pm
I am trying it on Demo account. But struck at the loss of equivalent to the total spread. I am curious how do you guys make profit when the spreads for 3 pairs add together is quite sizable...

Any enlightened guys care to answer?
  • #112
  • Feb 7, 2011 7:11pm Feb 7, 2011 7:11pm
Quoting the-game
Correct, I've tried this yesterday with my own basic EA to manage two separate baskets (BBS, SSB) of same pairs each with their own MagicNumber and there is no edge doing this, unless you're the Broker!

Hi,

If the ea is using check account profit as a global variable, then of course there would be no edge at all. Can you confirm that the ea is looking at total trade profit per individual group only, or looking at the figures for all trades in total, in which case it'll probably never book any profit. Pls see my previous post on this which explains it a bit better.

On the point of the stochastic, if as shown by Tex they are representing a point of "stretch" from where you "may" get into profit sooner rather than suffer a drawdown, then it would make sense to explore that as a point of initiating entry. There is probably no disadvantage in doing it that way, since if you open a trade randomly for the group, the stochs could be anywhere and remain that way for a period of time in any case. But if they add to your edge most of the time..........

Regards
  • #113
  • Edited Feb 8, 2011 12:14am Feb 7, 2011 7:20pm | Edited Feb 8, 2011 12:14am
Pardy,

I'll give it one more test and see how it goes.

Basically I am opening two baskets at the same time of the same pairs.
1. BBS
2. SSB

They are managed separately with their own Magic Numbers and their own Dollar Profit Targets.
I'll post back my statement after a while as this type of testing can take a long time.


I am also testing a different setting of my EA that uses the Stochastic OB/OS limits to decide when to open a BBS or a SSB basket.

Stochastic settings are as follows: Time Frame=M5, K%=100, D%=1, Slowing=1, OB=80, OS=20
I am using these settings as this thread was sort of born from Dreamliners Hedge and Correlation thread which uses these settings.

Basically if the Stochastic for GU and UCHF are < 20 and GCHF > 80 then BBS basket is opened. Vice-versa for SSB basket.

I will also post my results for that, again after a while as explained above.
I will be using Comments to differentiate the baskets.


EDIT: I'm using Lot Size = 0.1 for each trade and the Dollar Profit Target for each basket is $10.
When the Dollar Profit Target is met it closes that basket then opens another basket of the same type and direction.
Rinse and repeat...


Cheers,
the-game.

P.S. If my EA has bugs, then that will further lengthen the result time.
Yesterday I had a bug where the profitable basket was to be closed for a $10+ profit, but the USDCHF buy trade did not close for some reason... and I'm still racking my brains to see why that is... after some coding to make sure the basket has closed properly, I'm crossing my fingers that it won't happen again on these tests!
  • #114
  • Feb 7, 2011 7:33pm Feb 7, 2011 7:33pm
Had another thought, this strategy of opening two baskets (BBS, SSB) and managing them properly could be profitable if opened before Frankfurt/London open, as both baskets have GBP and CHF.

As to how to manage them, is a different story as there is so much volatility during the opens.
  • #115
  • Feb 7, 2011 7:47pm Feb 7, 2011 7:47pm
Quoting the-game
Had another thought, this strategy of opening two baskets (BBS, SSB) and managing them properly could be profitable if opened before Frankfurt/London open, as both baskets have GBP and CHF.

As to how to manage them, is a different story as there is so much volatility during the opens.
You're probably right, pair relationships change most in active market conditions, equally NY open could have similar impacts when the DOW and commodities markets are open.

Do hope your ea works well, be very interested in the results. Incidentally, a little while ago I put on the BBS pairs, which are neg by about 15 pips atm. Reversing that, I guess if I had put on the SSB, I would have booked profit of 15 pips, and then waited for the BBS to get to profit at some time.

I must try out that stoch indi on the charts and see what it shows. I wonder if it might somehow give a lead into single pair directional play as well. Much to learn!

Pardy

Pardy
  • #116
  • Feb 7, 2011 7:53pm Feb 7, 2011 7:53pm
Try the Stochastic 3 Pairs indi posted a couple pages back.

Shows all three Stochs in one window
  • #117
  • Feb 7, 2011 8:19pm Feb 7, 2011 8:19pm
Quoting thorn
The thread stared 2 days ago. What reason do you have to deem it profitable?
This method is older than 2 days.
  • #118
  • Feb 7, 2011 11:38pm Feb 7, 2011 11:38pm
So the question is.....
Is there any smart coder to code such ea.. which will open BBS and SSB basket at time with magic number?
  • #119
  • Feb 8, 2011 12:07am Feb 8, 2011 12:07am
Quoting Password
So the question is.....
Is there any smart coder to code such ea.. which will open BBS and SSB basket at time with magic number?

Yes there is one guy around . Thats exactly what we need here.

Quote
I'll give it one more test and see how it goes.

Basically I am opening two baskets at the same time of the same pairs.
1. BBS
2. SSB

They are managed separately with their own Magic Numbers and their own Dollar Profit Targets.
I'll post back my statement after a while as this type of testing can take a long time.


I am also testing a different setting of my EA that uses the Stochastic OB/OS limits to decide when to open a BBS or a SSB basket.

Stochastic settings are as follows: Time Frame=M5, K%=100, D%=1, S%=1, OB=80, OS=20
I am using...
  • #120
  • Edited 6:20am Feb 8, 2011 5:15am | Edited 6:20am
There is only one way to prove/disprove this strategy once and for all, do a backtest on Dukascopy's JTrader. JTrader backtests in real tick data so the accuracy is as close as you get.

I have done this before but lost the code will do it again when I get time this week.
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