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Hedge and Correlation Strategy

  • #2,741
  • Feb 17, 2011 8:42am Feb 17, 2011 8:42am
Quoting Ckp
However some entries would turn into loosers as shown in "Point A" on the chart. The sharp down move and resulting loss might have been a news event perhaps, but still you will find these bad moves every now and again.
CKP, thank you for sharing your findings and thoughts. I was also playing with excellent "basket profit 2 pairs" indi yesterday and came to some conclusions. One of the observations I made and it has been already mantioned here by many is very well illustrated at your picture. That drop down from Point A to the very buttom seems to me as a combined price rally straight down. And since they have different speed in value you got your looser. The other way around from Point B and all the way up - difference in the currency speed explains a BIG winner. I can not see the dates on the picture but I highly doubt that those winners/loosers have anything to do with pair de-correllation due to a News event. A simple cure for that would be an adjusted basket lot sizes for each order, IMHO. It should give you equal dollar amount to be immune for the combined currency moves like that. I am not saying that we should ignore News events and I completely agree with spinfoil on that but I belive this particular case is different. If you ignore speed of orders then in most cases a slight move up or down for both correlated pairs will disbalance the couple spoiling the whole idea. Sometimes it will be in your favor but sometimes will not. What do you think? If you take your bad trade (Point A), recalculate the lot sizes and re-play it again would it be still a looser? How about the other one that was a winner. Still a winner? It would be interesting to get your feedback on such experiment.

squalou, thank again you for the claver design and implementation of your last indi. I was primarily using it to understand the big picture and also to see how you do the math. I have never done indis before and seeing how simple and effective it is it was just inspiring. Thanks! So, playing with it I was constantly questioning myself why do I need a BE ref point? I understand that you are using it as a starting point of your calculations, some kind of ground zero and everything else is spinning around that point. As the result we have mean and st.dev lines jumping up and down and you have to keep in mind that it is all in the relation to the selected BE. But is that what we want? BE is an artificial point that we simply declare. So, that thought was bugging me again and again. I may be completely wrong here but the idea is to simplify visual representation by converting BE ref point into a staight horizontal line in the middle of the indi. This way we will get rid of BE ref vertical line that we need to move back and force and it will show all price deviations around that single horizontal 0 line in middle. Moreover, you could always see the true basket price deviation from its mean in relation to st.dev lines at any given moment. It is just my vision and something I hope you would be interested to implement. I think it should help in reading the basket value and placing orders. What do you and others think?

rulla
  • #2,742
  • Feb 17, 2011 8:48am Feb 17, 2011 8:48am
Hi Nicastro, I tried the News indi found here but it required some DLL file. I do not have the DLL file name as I am not at my home computer but that was the reasone why it did not work for me. If you happen to have that DLL please post here.
  • #2,743
  • Edited 9:10am Feb 17, 2011 8:49am | Edited 9:10am
Quoting tordi
Hi @ all
One question: what are your drawdowns? and how many days were the trades open?
I trade the system for 2 weeks and had been the longest drawdown for 38 hours with -70 pip. So far I was able to close all trades at a profit.
I'll have to test how much risk per trade can be made, since I do not sit tight stop.
Many thanks to the Dreamliner and the developer
Good question. I have come across maximum DD of 120 pips in hourly chart. But closed finally with a marginal loss of 28 pips when i exited at 40 %. Had i waited till 20 % exit, then may be a small profit. All happened within 2 days.
Intraday only.
  • #2,744
  • Feb 17, 2011 8:54am Feb 17, 2011 8:54am
I found bunch of bugs and the EA that I posted here "Going Home StDev" and I believe the math should be corrected. I am working on it implementing new math and fixing those bugs. So, for the time being please ignore it.
I will try and if I can I will delete that post. Thanks.
  • #2,745
  • Feb 17, 2011 9:56am Feb 17, 2011 9:56am
i just passed the 1000 pips profit. i am now in +1068 pips of profit.

i am on 5 minute charts. and run EA now for 7 days ( working days )

i had last week that huge drawdown of the GBPJPY vs GBPUSd and GBPAUD and GBPCAD. however using my hedging idea. i manage to close the trade now in brake even. costed me basicly 3 hours of manual trading to get that far. spanning over 2 days.

but what i do is i check which pairs are in a hugh drawdown towards each other and hedge each other pair out checking the correlation chart. make ofcourse sure that i dont start hedging when news is at hand.

i do it this for like 1 hour max. and take between 15 and 60 pips profit so far i tried it. i had to close a gap of 120 pips.

also this is pure action trading. so i dont use stoch for this indicator. only the smjones indicator to overlay the charts.
  • #2,746
  • Feb 17, 2011 10:09am Feb 17, 2011 10:09am
Quoting trade4fun
i just passed the 1000 pips profit. i am now in +1068 pips of profit.

i am on 5 minute charts. and run EA now for 7 days ( working days )

i had last week that huge drawdown of the GBPJPY vs GBPUSd and GBPAUD and GBPCAD. however using my hedging idea. i manage to close the trade now in brake even. costed me basicly 3 hours of manual trading to get that far. spanning over 2 days.

but what i do is i check which pairs are in a hugh drawdown towards each other and hedge each other pair out checking the correlation chart. make ofcourse sure that...
What was the max DD you came across for the trades placed by EA and what was your entry percentage?
Intraday only.
  • #2,747
  • Feb 17, 2011 10:57am Feb 17, 2011 10:57am
TO AVOID LARGE DD, SOME PAIRS TO AVOID TRADING : GBPCAD, GBPCHF,GBPJPY.

These pairs have high volitility hence could attract large DD.

Link : http://www.mataf.net/en/tools/02-01-volatility
Intraday only.
  • #2,748
  • Feb 17, 2011 10:57am Feb 17, 2011 10:57am
max drawdown was at 1 point last friday at -90%.

my whole 600 profit i made when starting last wednesday almost gone away. however this week picked up nicely. profitable orders.also drawdown became less to -350 pips. then started thinking of hedging out my drawdown that still excist from last week. and idea worked.

biggest drawdown i had at 1 time was on GBPJPY vs GBPUSD. was like -200 pips somewhere at monday.

now all orders closed and +1068 pips profit in total.

also i still use the stoch EA.not the latest 1.

i think stoch is alright for the method so far. dont get me wrong, if someone can find something better i am all for it. but always in my head i think of plan B. incase a trade goes wrong.

not be rude. but i hope i get some more wrong orders, so i can further test my idea out.
  • #2,749
  • Feb 17, 2011 11:06am Feb 17, 2011 11:06am
Here is something else to think about. I am looking at the code that calculates correlation for pairs and wondering why it is using closing price? We need to compare apples to apples but it looks like we compare apples to oranges. Should we put prices on the same scale and measure them after? That should give us a better picture I think. I am going to fix it and see how it works.
  • #2,750
  • Feb 17, 2011 11:34am Feb 17, 2011 11:34am
Quoting navk
TO AVOID LARGE DD, SOME PAIRS TO AVOID TRADING : GBPCAD, GBPCHF,GBPJPY.

These pairs have high volitility hence could attract large DD.

Link : http://www.mataf.net/en/tools/02-01-volatility
I agree on GJ. I took off all sets that have this pair. Max floating DD I had with this was about 4% and mostly because of GJ! Since then i think max 2% so not much really. I trade 0.1 lots and the original demo balance of £5k has grown by >8% with little risk over the last 20 days.
  • #2,751
  • Feb 17, 2011 11:48am Feb 17, 2011 11:48am
Quoting Zr-fx
I agree on GJ. I took off all sets that have this pair. Max floating DD I had with this was about 4% and mostly because of GJ! Since then i think max 2% so not much really. I trade 0.1 lots and the original demo balance of £5k has grown by >8% with little risk over the last 20 days.

I seen correlation 100 days 75% are these:


euraud eurcad
eurcad eurchf
eurchf eurusd
euraud eurchf
eurcad eurjpy
eurchf gbpchf
euraud eurjpy
eurcad eurusd
eurjpy eurusd
euraud eurusd
eurchf eurjpy
gbpchf usdchf
  • #2,752
  • Feb 17, 2011 11:51am Feb 17, 2011 11:51am
Quoting wallstreet03
I seen correlation 100 days 75% are these:


euraud eurcad
eurcad eurchf
eurchf eurusd
euraud eurchf
eurcad eurjpy
eurchf gbpchf
euraud eurjpy
eurcad eurusd
eurjpy eurusd
euraud eurusd
[size=2][font=Arial]eurchf...
Avoid gbpchf baskets. Rest are good to trade.
Intraday only.
  • #2,753
  • Feb 17, 2011 12:15pm Feb 17, 2011 12:15pm
Quoting navk
Avoid gbpchf baskets. Rest are good to trade.

dear nawk, you that indicator use for to see correlations ?

and how much time ? 50 days 1 hour ?

and avoid gbpchf, gbp jpy , gbp cad !

thank's
  • #2,754
  • Feb 17, 2011 12:24pm Feb 17, 2011 12:24pm
Yes, i use jones indicator to see corelations. I use SQ's EA for auto trading. Testing in hourly and 5 min. Both have resulted good profits.At times DD was max about 120 pips. Can live with it.

I use SQ's basket profit indi for manual trading. If used correctly, DD could be much lower by using this indi.

I use Mataf site to see daily volatility in order to avoid high volatile pairs.
Intraday only.
  • #2,755
  • Feb 17, 2011 12:55pm Feb 17, 2011 12:55pm
Quoting rulla
squalou, thank again you for the claver design and implementation of your last indi. I was primarily using it to understand the big picture and also to see how you do the math. I have never done indis before and seeing how simple and effective it is it was just inspiring. Thanks! So, playing with it I was constantly questioning myself why do I need a BE ref point? I understand that you are using it as a starting point of your calculations, some kind of ground zero and everything else is spinning around that point. As the result we have mean...

The BE line plays absolutely no role in the stddev determination.
It is just here for you to set the level 0 horizontal line.
If you play a bit with the BE line, you'll see that it does not change anything in the profit curve itself, it only refocusses the level 0 line so that the profit curve crosses the BE line at level 0. All other additional levels are then adjusted to that new 0 line.
Your suggestion to display the 0 line in the middle of the indi window, and shift the curve around that line has the disadvantage that you could not follow the profit curve based on a particular starting point: by having a fixed BE point in time, you can scroll the chart and see how far up and down the profit can go, and how long it takes to "come back home".
With the fixed BE point, you can also switch timeframes and still keep the same level 0, and therefore zoom-in or zoom-out on the profit line, and follow again the profit line over larger time ranges (when switching to higher TF).
With a readjusting 0 line, you completely loose this information.

sq
  • #2,756
  • Edited 3:52pm Feb 17, 2011 1:39pm | Edited 3:52pm
today bad

eurchf gppusd
euraud gpusd
euruad eurusd
euraud eurcad

m5

you ? bad also for you with this today ?
  • #2,757
  • Feb 17, 2011 5:10pm Feb 17, 2011 5:10pm
Quoting navk
Yes, i use jones indicator to see corelations. I use SQ's EA for auto trading. Testing in hourly and 5 min. Both have resulted good profits.At times DD was max about 120 pips. Can live with it.

I use SQ's basket profit indi for manual trading. If used correctly, DD could be much lower by using this indi.

I use Mataf site to see daily volatility in order to avoid high volatile pairs.

navk, also last version ea closes pair in profit and not that loses!

have you tryed also m1 ?
  • #2,758
  • Feb 17, 2011 5:54pm Feb 17, 2011 5:54pm
i'm using sq EA in live account after demo for bout 3 weeks. I set the EA to open trade at the bar open after stoch confirm. And I found out from yesterday trade that the trade did open confirming my stoch setting, but later I don't know why the stoch somehow repaint and making the trades confirmation 'invalid'. The trades later closed at a loss of 40 pips.
  • #2,759
  • Feb 17, 2011 6:48pm Feb 17, 2011 6:48pm
Quoting wilsonch
i'm using sq EA in live account after demo for bout 3 weeks. I set the EA to open trade at the bar open after stoch confirm. And I found out from yesterday trade that the trade did open confirming my stoch setting, but later I don't know why the stoch somehow repaint and making the trades confirmation 'invalid'. The trades later closed at a loss of 40 pips.
U should have noticed the repainting issue in yr 3 weeks testing. also how did u make EA take trades on bar open ?

i dont think its a good idea to wait for bar open, you can enter as soon as the stoch diff goes above yr setting.
  • #2,760
  • Feb 17, 2011 6:54pm Feb 17, 2011 6:54pm
Quoting roundrock
U should have noticed the repainting issue in yr 3 weeks testing. also how did u make EA take trades on bar open ?

i dont think its a good idea to wait for bar open, you can enter as soon as the stoch diff goes above yr setting.
Perhaps its coincident that the stoch all surpass 90% lvl and did not repaint during my demo period. The bar open setting is in sq EA, i only set it 'true'. Please find attachment for the EA i'm using.
Attached File(s)
File Type: mq4 Stoch Diff 2 Pair EAsq 2011.02.07.mq4   20 KB | 509 downloads
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