Hedge and Correlation Strategy

doman,

this thread and strategy is about correlated pairs. Your question was asked and answered earlier some times. Difference between trading triplets and pair is, that you are able to make profit in the triplet, if you were net buying EURGBP, despite EURGBP is moving down. Think about it - and read back a lot.

josch

Sorry but I am not sure if you understand what I mean.

If Stoch diff increases that mean cross pair is moving to some direction. And we expect that it will go back to balance = we expect cross pair trend reversal

I think it is the same if you buy EURUSD and sell GBPUSD as if you buy EURGBP ...

could you tell me how many time in average, you got alert by day in 5 mn chart ?

doman,

if you buy EURGBP und PA will go down, you'll have a loss. If you are trading the triplet, it's possible, that the triplet-pairs are going down and -because of correlation- the price difference comes back to standard. So - you may close the trade with TP.

josch

Lorka,

you should use the correlation with 15 min TF and more. Most traders here talked about their results in those TFs. The higher the TF, the smaller the # of signals/trades, but also higher R/R.

Example (not a good one, but sometimes it happens):
Using 30 min TF last week with 7 high correlated pairs (>90), there unfortunately was no signal.

josch

First of all ,forgive my english..im not an english speaker

Hmm,
Its seems that dreamliner has actually updated the thread, its not the same one which i read from years ago..
Its also seems it turned into another scalping system ..correct me if im wrong which probably is..

I have been trading this strategy(the old one before the update/original)... since july 2010, i have not lost one month with it..
If you are trading below 1hour TF,then you only dig urself a hole..i have tried the strategy below 1hour without much success,the same can be apply to any other scalping strategy from the east to west of the internet at least in my exprience.
Then begin the wake up call, i increased my playground to 1hour TF and eventually 4 hour tf since this is tf that gave me the most comfort.
I looked back at the crazy 2008 movement, which i think you must be able to withstand 1000 -2000 pips DD against you if you are dead serious about trading this strategy...those 2000p DD would occur for the most cross pairs..not the major ones.
All i looked was find the gap in 4 hour tf ,and let the gap get bigger,maybe 100 pips or so...
this part is not that important :> (go use a bollinger band, look at a confirmation candle at the extremities. Just make a guess,because you wont know it will go towards tp at that time.Otherwise use the gaps like above)
Overleveraging is one of the obvious dangers trading the system, if youre afraid to average with DD then the system is not for you.You MUST! be comfortable with the position sizing, which means a few hundreds pips wont wipe your account.
KNOW that in trading ,precision is not possible especially for the average trading.. you will know which direction the pair will go, but can you ever guarantee that it will not go against you position the moment you enter?God knows that probably it will go 100 -200pips against you first before going with you.
If i experiece DD i add some another trade ,buying or selling some more...i wont double up..thats martingale...if it goes 500 - 600 against me , i kick in a hedge, minimize the exposure, wait until the pair go with you.
The philosophy is like,,,you have a big bullseye a few hundreds yards away, you have been giving two choices of guns ,one a sniper and one other is a machine gun.If i shot with the sniper rifle i probably missed because im not a good sniper.Give me the machine gun with a scope,after a few dozen rounds, i probably hit the target sooner or later.I still win because the goal is to shoot the bullseye compared to the sniper.. you have only one shot.
This is the main way i trade...for almost 1 year

I also let the trend to help me with the decision since trading a eurusd and gbpusd would almost equal a trade with eurgbp, i have a look at the daily trend ,or even the weekly trend.As the poster above me said, the higher the tf the higher the DD the higher the rewards.The other thing is the lower stress...you wont have a heart attack trading this.You wont be worrying much about SL since its only use was an emergency SL,which you hope wont ever happen.But even if it did i can still trade .
You also need to be aware of your surroundings...the condition of the market...are we still in the crisis or not?Is there another sick newswhich will shake the market?
Be wary of this and you will avoid a serious losses or drawdown.
Remember that we are trading a mean-reverting technique or a semi range trading.

I have scalped many systems few years back...i have even got a 10 losing streak scalping using the traditional set your SL and TP system from the 30 mins and below...never did work more than 3 months.You only have a fighting chance when you go to the higher TF,,but that doesnt stop the market from eating the SL.The market is a living being,remember that.Btw you can still scalp this in the 1 hour TF ihave tried that with some success


It will take me some convincing for me to trade the trend following systems, i couldnt handle the pain with the SL and waiting the setups to appear...i gave them 50 50 chance of succeeding, even less then the coin toss.
The downfall was that when you miss the trade,you could potentially miss the winning trade that would probably saved the account.Not even the S&R systems...as S&R often got bust not matter how 'strong' they are...wiht exceptions of course.
I can hardly believe that after years...many sites on the web are still teaching the wrong ideas about stop losses, TP and left out the importance of multiple entries/money management/leverage/the futility of scalping the lower tf ...i'll give you another analogy ..lets say that we are all fishermen..the conventional trend following loves to catch fish by diving and chasing them...it is so dangerous they could either drown while catching them...me on the hand use fishing net or the rod,waiting for the fish to come....


This kind of system is still the best since i know beforehand what risks i will take......even in a giant trend i could still survive at least with the highly correlated major pairs...maybe because the high liquidity of the majors...the commodities pair are scary since they are vulnerable to the market forces...imho

What i have said above doesnt apply to all traders, i cant deny that many ppl are successfully trading the conventional trading route..this is more the ones that are still actively seeking or felt insecure about their trading..this is my personal insight about what works...at least for me...all my hope is that somewhere,somebody would learn from my ramblings above...

Knowledge is power..and when the knowledge is shared it become even more powerful...you must take care of you wealth ,but wealth couldnt take care of you...money is finite..if you spend it ,its gone ,knowledge could benefit you and others it wont run out... what harm knowing ...even if it didnt benefit you
..bah another ramble..
Thx to dreamliner ,this thread was the one that sets me in the right path..

Lastly, the key is the bigger Timeframes... one lady once told me to trade the higher TF...stop chasing trades...which i ignored...the result is 3 years of wandering and wondering what/how/who ...now i know she is right all along...

Good post. Thank you. I have been trading this for about 3 months now and happy with it. You are absolutely right about being able to withstand deep drawdown. Once I understood this things turned around.

One question though, you mention an original method using this strategy. Where would I find it please?

Thanks

thx, you have to ask dreamliner for the original method,its actually in the first post of this thread,but he changed the whole post...you could read the first 100 pages of the thread to get the clues but essentially the concept are still the same as of the current method.
You can also google 'hedge and correlation strategy' and you should found the thread at the first few results easily.fx tsd

zr-fx,

the 'old method' was the same in general. over the development of threat the trigger was changed - using stoch management to get entry and exit (as far as I remember). So, it's correct as superbandam wrote in next post, if you read the 1st pages you'll get the old method. Dreamliner only updated the 1st post.

josch

superbandam,

your comments were very clear and welcome. Thank you for your personal insight thoughts. It was pointed out earlier in this thread, that correlation trading is nothing to use with small TFs. Also there were talking only a few members about their experience with higher TFs, meaning M30 and more.

But I would be interested to hear something of you ref. following points:

- TF H1, roughly what # of trades you have in a month?
- How many pairs you are following?
- If you trade this TF, as I'm understanding, the trades are running long
time, means without your possibility to avoid the (bad) news events (?)

- You mentioned pairs 'eurusd and gbpusd would almost equal a trade
eurgbp'. But I'm correct - you trade triplets, means eurusd|gbpusd and
have a look at highest correlations or do you use only/also the so-called
quadruples?

Thank you for further information
and remain successful with this
josch

For josch

1) For the 1hour TF i do get 4 trades per month since the last year,sometimes 3 sometimes 2 when i get clumsy, i cant watch the charts all the time..

2) So far i have only followed EURGBP or eurusd/gbpusd exclusively , i have spent 1 -2 years watching their behaviour since im a slow learner..i needed to master this pair first before moving on the next ones..maybe theres only 6 major pairs...the eurusd and usdchf pairs are usually negatively correlated..i used to trade this also before the 2008 and crash and during...ditched it eventually..i also plan to make some experiments for nzdusd and usdcad for the mean reverting behavior..although i also welcome any new pairs that have potential
3) Its part of my plan to wade through even the most bad news event which will occur? i looked at the worst trending movement in 2008 which the spread got wider and wider..thats when the hedge will kick in ...i used the 2008 crazy movement for a benchmark for future "craziness'..in worst case scenario you better be prepared.A trader once told me and others to prepare for 1000 pips DD at least ,which i doubt would happen...since we can scout for signs of crisis ,the news. web,cnbc bloomberg whatever..the 2008 is predicted..we will avoid trading during the low liquidity times...one of the reason imho for the crazy jumps /movement during the crisis is the lack of liquidity from the major player/banks/big dogs...so the giant movement could happen...so stop trading before that happen...but i knew any storm will end somewhere
Even if then we got stopped out finally we have cushioned the loss since we have gained so much(hopefully) during the previous run before the chaos
4) If you opened the trade for sell eurusd ,buy gbpusd and also short direct
EURGBP...you will notice some difference...the total sum of the triplet sometimes is more than the total sum of direct trade eurgbp and sometimes less..i had used both trading directly eurgbp and both the triplet..
interesting observation i had found....in the short term...i had seen that a sell eurusd and buy gbpusd is in plus...but the one with the direct sell eurgbp is in minus!..seen it last year once...it was -10 or -20 pips or so in the eurgbp and the triplet is in +10 pips cumulative...very weird..but i dont think its that applicable for me since i trade H4 or above...i still scalp with 1 hour TF sometimes nowadays i just trade directly
5) Dont ever overleverage..dont risk half of the account,no system can survive with that..remember LTCM
6) Definitely doable... i had heard and seen many ppl having success with this technique ..they are quiet and you dont hear them ...they have been doing it for years be good times or bad..if u can gain the confidence first then the rest will be easier..they could do it...so do i ....so u can ..too


Thank you

superbandam,

thank you! Really great information and seems to me -overall- a lot of time necessary to check this out. Would you finally have a word about the averaged profit per trade/month? Thx again.

josch

Excuse me ，

How can I get this picture?

http://http://www.forexfactory.com/a...1&d=1300657282


I am a chinese boy, I don't speak very well english but i like this trading by HEDGE very much, you know? In china, nobody will tell you about this even they know about this. I hate chinese people. I try to recherche by myself,alone, work everyday with more that 18 hours and now it's 7 oclock on moring, YES, I have not slept but it's normal for me when I am attracting by Hedge. I work for it has been 6 months and 22 day. Yes,finally,I am reaching to succes because all of you here, I have seen serious every 210 pages here and now i can speak english. Thanks very much ,really!

I want to find out a master who can help me to make a greater progress but it's not so important.

By the way,some one can tell me how to take or make this photo upside because it's very beautiful and clearly . Sm,thanks u very much ,could u modified your old one like that because this looks very clearly and Convenient.

Well it is better to use FX Vanillar Options for hedging...
You can develop nice strategies as well

Thank you both Josch and superbandam3

ilikehedge,

welcome to the thread and grow your success. You'll get a photo beside your nickname by editing your profile > avatar.

josch

Hi all,

My first post, I've been reading through this thread for the past three days, and found it interesting, could someone kindly help and state a step- by step guide of how this works, what indicators are to be downloaded and how are they applied on MT4, some explanation on what "stochastic" means, what is 80:20 or 70:30 etc....

For the past 2 years I've been using a hedge strategy that is RISK FREE, and requires the slightest follow up possible and has shown great results, I will post details later if anyone is interested.

Hi there

I'm sure we'll all be interested in a good system, please post the details.

Thanks

Paul

I am pretty new in trading so all the help provided is more than welcome. what is your hedge strategy?