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Hedge and Correlation Strategy

  • #3,081
  • Edited 11:29am Mar 27, 2011 10:06am | Edited 11:29am
Hi Oluwadare: thanks for your contribution. Very interesting.

I have a couple of questions.

Quoting oluwadare
2.I also use ema 3,10 and parabolic SAR(0.1,0.1)- where ema 3 cross ema 10 with one parabolic indicator as entry signal for buy or sell.

4. I don't use stop loss. I risk 1% and use either a buystop or sellstop about 200 pips away.If the trade is buy, I use sellstop; if it is sell, I use buystop.(I only use it in-case the unforeseen happens)
Moving Average. Do you apply it to BOTH pairs you are trading (thus to all single charts) or do you use it on the derived pair? i.e.: if we wish to trade EURUSD/GBPUSD we apply the EMAs to EURGBP only? Or, also, do you use other indicators like "basket profit 2 pairs", which plots a synthetic line of the 2 chosen pairs?

(If you post a chart it would be fine)

Risk.
When you say you don't risk more than 1% and you say you use opposite orders 200 pips away, you mean 200 pips x 2 pairs (so 400) are 1% of your trading capital?



Quoting oluwadare
2.I also use ema 3,10 and parabolic SAR(0.1,0.1)- where ema 3 cross ema 10 with one parabolic indicator as entry signal for buy or sell.

4. I don't use stop loss. I risk 1% and use either a buystop or sellstop about 200 pips away.If the trade is buy, I use sellstop; if it is sell, I use buystop.(I only use it in-case the unforeseen happens)
Till now I didn't check such long timeframes, but I feel it makes sense (from a correlation point of view).
  • #3,082
  • Mar 27, 2011 11:11am Mar 27, 2011 11:11am
Quoting oluwadare
Good-day All,
This is how I trade this strategy that gave me 10-20% return in a week without losses.

1. Study all correlation theory and highly correlated pairs on this site very well- http://www.babypips.com/school/what-...rrelation.html
http://www.babypips.com/school/how-t...on-tables.html
http://www.babypips.com/school/alway...-exposure.html
http://www.babypips.com/school/how-t...r-trading.html
http://www.babypips.com/school/know-...ns-change.html...
Hi have read the 6 links, but I think that it is not hedging, but a normal method for trading.

I will be very gald to see your report for these trades, you mentioned.

Anyway, thank you for sharing.

Y.
  • #3,083
  • Mar 27, 2011 1:16pm Mar 27, 2011 1:16pm
Quoting crossy
Hi have read the 6 links, but I think that it is not hedging, but a normal method for trading.

I will be very gald to see your report for these trades, you mentioned.

Anyway, thank you for sharing.

Y.
All those links are normal methods of trading. But one point i noted from his posts.

The stoc of two corel pairs tend to move in same direction. This way we enter into trade one pair in right direction and other pair in wrong direction. However during the stoc move, the diff between stoc of two pair reduces. OK, The stoc diff reduces but the profit is not assured.

So the better way to trade this method is having a filter 10 & 3 ema as he said?

What i wanted to say, we enter into trade one pair immediately after :
1) seeing stoc diff 80 or 90.
2) Check IF stoc of any one pair in ob/os zone, confirm EMA cross of 3 and 10, if so, enter into trade right away.
3) Wait untill the next pair goes into ob/os zone, confirm 3 and 10 EMA cross then enter opposite trade.

This way we can avoid DD in one pair. We need to test this. i have not yet tested.
Intraday only.
  • #3,084
  • Mar 27, 2011 7:27pm Mar 27, 2011 7:27pm
jack-fx thank you for the question.

HOW I TRADE THE SETUP
1. I look for where ema 3 and ema 10 cross with single parabolic signal for buy or sell.
2. I look for correlated pairs(negative or positive) with the pair with the entry signal,which has the same ema crosses and parabolic signal.
3. I confirm the stochastic paired difference signal for all correlated pairs that has the ema and parabolic signal. To be sure of the correlation and save entry.
4. Immediately the ema and stochastic paired difference signals are satisfied at a particular Time. I trade all correlated pairs without any fear.
5. Sometimes I trade 2,3 or more correlated pairs at a time.

Risk Management
The 1% refers to each currency pair I trade.
  • #3,085
  • Mar 27, 2011 7:44pm Mar 27, 2011 7:44pm
Good-day Crossy,
This is the result for the daily chart.I also trade it on 4hrs time-frame on another plateform.I also used the correlation strategy on gold,silver and crude oil.
Attached Image (click to enlarge)
Click to Enlarge Name: correlation strategy.png Size: 67 KB
  • #3,086
  • Mar 27, 2011 8:59pm Mar 27, 2011 8:59pm
Quoting oluwadare
jack-fx thank you for the question.

HOW I TRADE THE SETUP
1. I look for where ema 3 and ema 10 cross with single parabolic signal for buy or sell.
2. I look for correlated pairs(negative or positive) with the pair with the entry signal,which has the same ema crosses and parabolic signal.
3. I confirm the stochastic paired difference signal for all correlated pairs that has the ema and parabolic signal. To be sure of the correlation and save entry.
4. Immediately the ema and stochastic paired difference signals are satisfied at a particular Time....
thanks for the explanation. can u give an example with pair names ? when u say ema cross, should 3 cross 10 or 10 cross 3 ? for buy pair 3 should cross over 10 from bottom? and for sell pair it should cross from top?
  • #3,087
  • Mar 28, 2011 1:20am Mar 28, 2011 1:20am
Quoting oluwadare
Good-day Crossy,
This is the result for the daily chart.I also trade it on 4hrs time-frame on another plateform.I also used the correlation strategy on gold,silver and crude oil.
Attachment
Thanks oluwadare,

I have to study it, and again, thanks for sharing.

Y.
  • #3,088
  • Mar 28, 2011 4:44pm Mar 28, 2011 4:44pm
Quoting Caillou
Hello Nicastro,

Thanks for your kind words. I´m just testing with "Tradable Correlations with spreads" indicator and MPTM EA from Steve, with triples and quads.

DD is unavoidable like this, so I´m trying to filter some bad entries with overlay charts from Dailyfx.

It´s too early yet but since there is no direct relation between price and Stoch, we have to use some kind of filter, just my opinion.

Regards
Can you make EA out of this indicator??
  • #3,089
  • Mar 28, 2011 5:21pm Mar 28, 2011 5:21pm
Quoting oluwadare
Good-day Crossy,
This is the result for the daily chart.I also trade it on 4hrs time-frame on another plateform.I also used the correlation strategy on gold,silver and crude oil.
Hello Oluwadare, and once again thanks for sharing your results.

I read and re-read your posts and also check your trades on the charts.
A couple of questions about the trades you showed us.

1) Your entries (the start of your trades) don't seem to correspond to the rules you specified. ie: EMA cross and parabolic inversion occured much earlier than your time of entry. If we see your first trade on GBPUSD, it seems you entered in the middle of a trend. This is on the Daily and 4H charts. Maybe you use a lower TF for entry only?

2) Positive correlated pairs. It seems you choose the same 'direction', but we know that we should buy one pair and sell the other one. I see this in the first trade (2011.3.21): you both buy eurusd and gbpusd. The same can be seen 3 days later (2011.3.24 - 05:22) where you both buy other 2 positive related pairs: GBPAUD - EURAUD.
Maybe you use three pairs rules (as in the other thread)? BBS and SSB?

3) when you say:
"3.I also use stochastic paired difference indicator -
Signal:
A.Diffrence between 0-30% -Signal for explosion of high pip generation.
B.Buy below stoch 50, Sell above stoch 50"

...it's not very clear to me. You mean you enter with ANY stoch difference? Even 0-30%?

Well, it would be fine if you would post just one chart. As always: a picture is worth 1.000 words.

thanx
  • #3,090
  • Mar 29, 2011 3:41am Mar 29, 2011 3:41am
I think we need to amend Tradable Correlation indi so that it scans for the pairs with standard deviation of 2 or more and gives alerts... That would be cooool, don't you think?

Les_Paul
  • #3,091
  • Mar 29, 2011 8:05am Mar 29, 2011 8:05am
Quoting roundrock
i always trade triplets
When all conditions met we have 2 orders buy & sell. One of them usually goes against the trend and results in high DD. What we need is to have orders to be open in direction of the trend. Steve Hopewood was using RSI in his Going Home EA and we and up with mach less orders and lower DD.
If some one can cod this to stoch. EA .
Thanks in advance .
Vit
//Trend definition
bool UpTrend = true;
bool DownTrend = true;
if (TrendTradeOnly)
{
double v = iRSI(buySym, 1440, 20, PRICE_CLOSE, 0);
if (v < 55) UpTrend = false;
v = iRSI(sellSym, 1440, 20, PRICE_CLOSE, 0);
if (v > 45) DownTrend = false;
}//if (TrendTradeOnly)
  • #3,092
  • Mar 29, 2011 10:30am Mar 29, 2011 10:30am
Quoting oluwadare
Good-day All,
This is how I trade this strategy that gave me 10-20% return in a week without losses.

1. Study all correlation theory and highly correlated pairs on this site very well- http://www.babypips.com/school/what-...rrelation.html
http://www.babypips.com/school/how-t...on-tables.html
http://www.babypips.com/school/alway...-exposure.html
http://www.babypips.com/school/how-t...r-trading.html
http://www.babypips.com/school/know-...ns-change.html...
Hi,

I have been testing your method. Untill now good.

If you can further explain your entry and exit criteria with a picture, that would help many forum members here.

Good luck with your trading.
Intraday only.
  • #3,093
  • Mar 29, 2011 11:26am Mar 29, 2011 11:26am
Quoting chrisx
I've modified squalous indi and implemented the std. dev. 3 lines.
I removed the std. dev. 1 lines though because you can only set a total of 8 buffer variables in the code ( correct me if thats wrong )

I'll attach it for you, I hope squalou doesn't mind.
Excellent modification. could we begin to pinpoint some rules for this indicator? any specific idea?
Humble & Kalcker CLO2 = Covid killer
  • #3,094
  • Mar 29, 2011 2:55pm Mar 29, 2011 2:55pm
Good-day all,
Find below the set-up,
Attached Image


For each pair, I set up it up with a positive correlated pair and with a negative correlated pair.I do the same for every currency pair.
For example from the chart above, I would have entered buy for GBPUSD and EURUSD and enter sell for USDCHF and if I discover any other correlated pair at that Time T I will enter the trade also.
The advantage is that it gives you the clear picture of the market at every point in time.

Note that daily chart is more specific than other timeframes, 4hrs is still managable but you need to study it in line with daily chart.


You can easily backtest after the setup to understand the concept very well and take advantage of the market.
  • #3,095
  • Mar 29, 2011 3:12pm Mar 29, 2011 3:12pm
Quoting oluwadare
Good-day all,
Find below the set-up,
Attachment

For each pair, I set up it up with a positive correlated pair and with a negative correlated pair.I do the same for every currency pair.
For example from the chart above, I would have entered buy for GBPUSD and EURUSD and enter sell for USDCHF and if I discover any other correlated pair at that Time T I will enter the trade also.
The advantage is that it gives you the clear picture of the market at every point in time.

Note that daily chart is more specific than other timeframes,...
Thanks for your chart.

I have few questions :

1) Will you buy when stochastic of both pairs ( in the picture, it is eurusd and gbpusd) are above 50? You said in your post you will buy when stocastic below 50 and sell when stocastic is above 50?
2) For positive corelated pairs, i guess you will only enter buy/buy or sell/sell. Pl clarify.
3) Will you look for ema 3 cross over ema 10 for both pairs or or just one pair for buy entry?

Thanks
Intraday only.
  • #3,096
  • Mar 29, 2011 3:56pm Mar 29, 2011 3:56pm
Quoting navk
Thanks for your chart.

I have few questions :

1) Will you buy when stochastic of both pairs ( in the picture, it is eurusd and gbpusd) are above 50? You said in your post you will buy when stocastic below 50 and sell when stocastic is above 50?
2) For positive corelated pairs, i guess you will only enter buy/buy or sell/sell. Pl clarify.
3) Will you look for ema 3 cross over ema 10 for both pairs or or just one pair for buy entry?

Thanks

Good-day Navk,
You know the rules for positive correlated pairs is different from negative correlated pairs.I will try am make it more clearer in my next post using the same chart.

for positive correlated pair I enter buy/buy or sell/sell and for negative correlated pairs I enter buy/sell or sell/buy.

I will look for ema 3 cross over ema 10 for all pairs at the time T.

Thank you,
Successful Trading.
  • #3,097
  • Mar 29, 2011 6:30pm Mar 29, 2011 6:30pm
Quoting oluwadare
...
for positive correlated pair I enter buy/buy or sell/sell and for negative correlated pairs I enter buy/sell or sell/buy.
Thanks for posting your charts and explanation.
Now it's more clear.
The fact that people here keep on asking you about your entry, is that it seems it doesn't correspond to hedging, or the strategy exposed in this thread.

If 2 positively correlated pairs are chosen, it means that they are temporarely uncorrelated.Thus we buy one and sell the other, waiting for they close the gap, and get back to a correlated state (this is convergence correlation).

On the contrary if they are negatively correlated: we buy both, since their movement is like a mirror.

But if you buy both positively corr. pairs, you are not using this strategy. I mean: no gap, no temporarely uncorrelation, etc.

You are simply doing directional trading, on 2 or more pairs. (In fact, using EMAs and parabolic helps taking your decision).

Is that correct or I miss something?

Greetings
  • #3,098
  • Mar 29, 2011 7:07pm Mar 29, 2011 7:07pm
Jack:

The positively corelated pairs move in same direction and negatively corelated pairs move in opposite direction.

We have been trading positively corelated pairs when "the gap" widens, and buy/sell. In this method we do not know what is "gap" in terms of pips to enter buy and sell. This happened due to various reasons including economic news .

But keep in mind the positively corelated pairs move in same direction but the velocity/speed of movement differs. That is why this "gap"

Let us say eurusd moves down by "x" pips and gbpusd moves down by "y" pips. The difference is x-y.

You trade buy/sell thinking that the gap will be zero at some point of time. But no one knows what will be x-y ? We enter too early and see big DD.

Oluwadare trades positively corelated pairs in same direction buy/buy or sell/sell. There is nothing wrong with that. It is more of trend trading but has great opportunity to profit more provided the entry is right.

For your info.
Intraday only.
  • #3,099
  • Mar 30, 2011 7:40am Mar 30, 2011 7:40am
Dear Oluwadare,

in your list of trades I can see that on 21-Mar you bought EURUSD and GBPUSD. However, these two pairs were both overbought - stoch well above 50. How could you take the trades - aren't they in direct contradiction with the rules you have specified for entry?

Could you please explain?

Thanks a lot

Les_Paul
  • #3,100
  • Mar 31, 2011 8:25am Mar 31, 2011 8:25am
Quoting gms
I have added a correlation filter to the EA. You can change the treshold with "EnterAboveCorr=".

My changes are based on the version "Stoch Diff 2 Pair EAsq 2011.03.01".

I have not tested the EA! Please test before using live!

gary
Hi, I've read through the thread a little and tested the EA you modified.
I read a few pages earlier that it had closing problems which were fixed.
When I test EA it most often closes the position which has reached the defined profit, but leaves the other position open.
Do I need to change any settings?
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